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How does the supply of a currency in international markets affect the value of digital currencies?

avatarMelton LohseDec 27, 2021 · 3 years ago3 answers

Can you explain how the supply of a currency in international markets impacts the value of digital currencies? I'm curious to know how changes in the supply of traditional currencies can influence the value of digital currencies like Bitcoin and Ethereum.

How does the supply of a currency in international markets affect the value of digital currencies?

3 answers

  • avatarDec 27, 2021 · 3 years ago
    Certainly! The supply of a currency in international markets can have a significant impact on the value of digital currencies. When the supply of a traditional currency increases, it can lead to a decrease in its value relative to digital currencies. This is because an increase in supply can result in inflation, which erodes the purchasing power of the currency. As a result, investors may seek alternative assets like digital currencies, which are often seen as a store of value and a hedge against inflation. This increased demand for digital currencies can drive up their value in international markets.
  • avatarDec 27, 2021 · 3 years ago
    The supply of a currency in international markets plays a crucial role in determining the value of digital currencies. When the supply of a traditional currency decreases, it can create a scarcity effect and increase its value relative to digital currencies. This is because a decrease in supply can lead to deflation, which increases the purchasing power of the currency. As a result, investors may prefer holding traditional currencies over digital currencies, leading to a decrease in demand for digital currencies and a potential decrease in their value in international markets.
  • avatarDec 27, 2021 · 3 years ago
    From BYDFi's perspective, the supply of a currency in international markets can impact the value of digital currencies in various ways. When the supply of a traditional currency increases, it can create a negative sentiment towards fiat currencies and drive investors towards digital currencies. This increased demand for digital currencies can drive up their value. On the other hand, if the supply of a traditional currency decreases, it can create a positive sentiment towards fiat currencies and potentially decrease the demand for digital currencies, leading to a decrease in their value. Overall, the supply dynamics of traditional currencies can have a ripple effect on the value of digital currencies in international markets.