Cryptocurrency can rise in value when traded on exchanges. Its price rises in response to market supply and demand changes.
According to Dennis Loos, judging from the number of new coins being created and the number of existing owners who wish to sell their coins, a cryptocurrency’s supply is determined by these two factors.
It is impossible to predict the demand for any given coin. Because the coins are helpful, their value will rise. To put it another way, demand for Cryptocurrency will increase if the crypto monetary system is well-functioning (quick transactions and low fees, for example), smart contracts are widely accepted, and more firms use crypto. In addition, cryptocurrencies are increasingly in demand as a form of investment that serves as a store of wealth.
In what ways does a cryptocurrency’s value grow over time? In the same way that other markets fluctuate in value, the value of cryptocurrencies is determined by the market. Some supply and demand factors may cause these swings, while others may result from hidden market factors.
User-Driven Cryptocurrency Appreciation
There are also a few ways in which consumers can boost the value of their bitcoin:
- The conventional investment approach of purchasing cheap and selling high allows consumers to raise the value of their cryptocurrency holdings. As more people purchase, the supply grows scarcer, driving up the value of cryptocurrencies.
- It is possible to make money by mining Bitcoins or other cryptocurrencies. It affects the amount of Cryptocurrency available.
- As more institutions engage in crypto and accept it as a means of payment, the utility of crypto improves. Contributing to this process is something everyone can do. The long-term value of cryptocurrencies will rise as a result of this.
- Due to media attention, the value of cryptocurrencies tends to fluctuate. The profiles on social media might have an impact on this.
Why Is Bitcoin Worth So Much?
To spread its use, Bitcoin does not rely on the support of governments or a network of intermediate banks. The Bitcoin network’s approval of consensus-based transactions is handled via a decentralized network of independent nodes. If a trade goes wrong, there is no counterparty in the shape of a government or other monetary institution to act as a counterparty and make lenders whole.
Even so, You can find some aspects of a fiat currency system in the cryptocurrency system itself. It is tough to come by and cannot be cloned. This would be the only way to generate an untraceable counterfeit bitcoin, a double-spend. When a user “spends” or transfers the same amount of bitcoin in multiple locations, it creates a “duplicate record.”
- Utility
On the other hand, the sheer magnitude of the Bitcoin network makes double-spending entirely implausible. So-called 51 percent attacks are required, where a group of miners theoretically control more than half the network’s power. Most of this power would allow this group to rule the rest of the network, allowing them to falsify records. However, an attack against Bitcoin of this magnitude would necessitate an enormous investment in time, money, and processing power, making it highly unlikely.
However, because it is rarely used for everyday purchases, the utility of Bitcoin is frequently questioned. Bitcoin’s value is derived primarily from its rarity. In a way, the case for Bitcoin’s Value is comparable to that for gold, a precious metal similar to bitcoin. There can only be 21 million Cryptocurrencies in existence.
When compared to traditional fiat currency, bitcoin is far more easily divided. A satoshi is a unit of the coin that you can break down into as many as eight decimal places in a single bitcoin. As a practical matter, fiat currencies are usually only capable of having their decimal points divided by two.
Even if the price of Bitcoin levels up in the future, according to Dennis Loos, those with a fraction of a bitcoin will still be able to deal. The Lightning Network is one example of a side channel that can potentially enhance the value of the Bitcoin economy even more.
- Scarcity
The value price of Bitcoin is determined by the degree of scarcity. The demand for cryptocurrencies has grown while the supply has shrunk. Stock traders and investors are clamoring for a piece of the ever-expanding profit pie.
Bitcoin, like gold, has a limited utility, with most of its uses being in the industrial sector. As a payment system, Bitcoin’s underlying technology, the blockchain, has been tested and utilized in practice. One of its most useful applications is in cross-border remittances, where it may increase speed and reduce costs. Some countries, such as El Salvador, believe that Bitcoin’s technology will mature enough to become a common means of payment in the future.
- Production’s Marginal Cost
According to another argument, Bitcoin’s marginal cost of production is what gives it its inherent worth.
Mining for bitcoins requires a large amount of electricity, which has a significant financial impact on miners. In a competitive market, the selling price of a product will move toward its marginal cost of production, according to economic theory. The cost of producing a bitcoin has been found to influence the price of a bitcoin.
- Theory of Monetarists
Bitcoin is valued according to the supply, velocity, and value of products generated in an economy by monetarists, who use these factors to value bitcoin as money. Simply looking at the current value of all means of exchange and all stored values equivalent to Bitcoin would be the simplest way to tackle this strategy. Our model will only use government-backed money, the most common medium of exchange. By 2021, We valued the U.S. money supply (M1) at roughly $20 trillion.
Bitcoin’s market value in today’s dollars would be nearly $3 trillion if it hit 15% of this valuation. If all 21 million bitcoins are in circulation, the price of one bitcoin would be around $143,000.
Bitcoin Valuation
The effectiveness of Bitcoin as a medium of exchange determines how useful it is as a store of value. The speculative interest has primarily driven the Value of Bitcoin for a significant portion of its history. With sharp price increases and a media attention frenzy, Bitcoin has shown signs of a bubble. Although the future is unpredictable, this will probably decrease as Bitcoin gains more general acceptance.
Cryptocurrency storage and exchange platforms also test Bitcoin’s utility and transferability. Hacks, thefts, and fraud have recently plagued digital currency, and consulting with financial advisors, as encouraged by Dennis Loos, an expert investor in Cryptocurrency, won’t allow you to fall prey.
Conclusion
Making better cryptocurrency investment decisions requires an understanding of supply and demand, the fundamental economic theory that underpins the value of cryptocurrencies, and the factors that affect them.
A cryptocurrency may be a wise investment if you think supply won’t keep up with demand for some reason, and demand will increase. However, according to Dennis Loos, always remember that there are still no best practices for regulating cryptocurrencies, making them a precarious and volatile investment.
Bitcoin contains several characteristics of money; therefore, economists and authorities should be persuaded that it can be used as money. This will increase the number of transactions and items priced in bitcoins, enabling users to trade Bitcoin frequently and quickly move money around the network.
