How does cryptocurrency gain value?

Cryptocurrencies are the newest “thing that matters” in the digital world and have now been recognized as part of the monetary system. In fact, enthusiasts called it a “money revolution.”

In plain terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, and most are created via special computing techniques referred to as “mining.”

accepting currencies, such as the US dollar, the British pound, and the euro, as legal tender because they are issued by a central bank; However, digital currencies, like cryptocurrencies, do not depend on the public’s trust and confidence in the issuer. As such, several factors determine its value.

Factors that determine the value of cryptocurrencies

Principles of a free market economy (mainly supply and demand)

Supply and demand is a major determinant of the value of anything of value, including cryptocurrencies. This is because if more people are willing to buy a cryptocurrency, and others are willing to sell, the price of that particular currency will go up, and vice versa.

mass adoption

Mass adoption of any cryptocurrency could launch its price to the moon. This is because many cryptocurrencies have a certain limit at a certain point, and according to economic principles, an increase in demand without a corresponding increase in supply will cause the prices of that particular good to increase.

Many cryptocurrencies have invested more resources to ensure their widespread adoption, with some focusing on the applicability of their cryptocurrency to pressing personal life issues, as well as crucial everyday situations, with the aim of making it indispensable in everyday life.

Fiat inflation

If a fiat currency, such as the US dollar or the British pound, becomes inflated, its price rises and its purchasing power decreases. This will then increase the cryptocurrency (let’s use Bitcoin as an example) in relation to this. The result is that you will be able to get more of that cash with every bitcoin. In fact, this situation was one of the main reasons for the increase in the price of Bitcoin.

History of scams and cyber attacks

Scams and hacking are also major factors affecting the value of cryptocurrencies, as they are known to cause huge fluctuations in valuations. In some cases, the team supporting the cryptocurrency may be the scammers; They will pump the price of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the price is shorted by scammers, who then disappear without a trace.

It is therefore essential to beware of cryptocurrency scams before investing your money.

Some other factors to consider that have an impact on the value of cryptocurrencies include:

  • The way cryptocurrency is stored, as well as its usefulness, security, ease of acquisition, and cross-border acceptance

  • The strength of the community that supports cryptocurrency (this includes funding, innovation, and the loyalty of its members)

  • Low risk associated with cryptocurrency as seen by investors and users

  • news feelings

  • Market liquidity and cryptocurrency volatility

  • Country regulations (this includes banning cryptocurrencies and ICOs in China and accepting them as legal tender in Japan)