Cryptocurrencies are the newest “big thing” in the world of digital and are now accepted as an integral part of the financial system. Indeed, some important people have described it as “the revolution in money”.
In simple terms, they are digital assets that are exchangeable among people without needing of any central authority, with the majority of which are made through special computational techniques known as “mining”.
The legitimacy of currencies like that of US Dollar, Great British Pound and the Euro as legal tender is due to the fact that they are given by central banks. However, digital currencies, like cryptocurrencies, are not dependent on the trust in the general public to the person who issued them. As such, several factors determine its value.
Factors that Determine the Value of Cryptocurrencies:
Principles of Free Market Economy (Mainly Supply and Demand)
Demand and supply are one of the main factors that determine the worth of any item that is worth something, which includes the cryptocurrency. This is because if a greater number of buyers are looking to purchase a cryptocurrency, and less are ready to sell the cryptocurrency, the value of the digital asset in question will rise as well, and the reverse is true.
Mass Adoption
A massive acceptance of any currency could boost its price to the sky. This is due to a number of cryptocurrency having their supply cap at a certain limit as per economic rules that a rise in demand without a corresponding rise in supply could result in a price rise of that specific commodity.
Numerous cryptocurrency have invested more resources to make sure they are able to achieve mass adoption, and some have focused on the ability of their currency to urgent personal issues and also to crucial day-to-day instances, with the goal to make them essential to everyday life.
Fiat Inflation
When a fiat currency like GBP or USD, USD or GBP is inflated, it will increase in value as its buying power decreases. It will cause the value of cryptocurrencies (let’s take Bitcoin as an instance) to grow in comparison to the fiat. This means that you’ll be able to purchase more fiat for every bitcoin. In actuality, this scenario is one of the primary factors behind the price of Bitcoin’s rise.
Scams and Cyber Attack History
Hacks and scams are important factors that affect the value of cryptocurrency, because they can create wildly fluctuating valuations. In certain instances the group that is supporting a cryptocurrency might be scammers. They’ll increase the value of the cryptocurrency in order to draw unwitting individuals. When their hard-earned cash is put into in the cryptocurrency, it is cut down by the fraudsters, which then disappear with no trace.
It is crucial to be aware of crypto frauds prior to investing your money.
Other factors to take into consideration which influence the value of crypto Other factors to consider include:
- The manner in which the cryptocurrency is stored and also its utility security, security, easy buying and trans-border acceptance
- The strength of the community that supports its cryptocurrency (this includes innovation, funding and the trust to its users)
- The cryptocurrency has low associated risks cryptocurrency, as per the perception of both users and investors
- News mood
- The volatility and liquidity of the market as well as the volatility of cryptocurrency
- Regulations for countries (this includes the prohibition of cryptocurrency and IoTs in China and the acceptance of cryptocurrency as legal currency in Japan)
