Cryptocurrencies are the latest “big” in the digital world and have now been recognized as part of the monetary system. In fact, enthusiasts have labeled it the “money revolution.”
In clear terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created using special computing techniques called “mining”.
The acceptance of currencies, such as the US dollar, the British pound and the euro, as legal tender is due to the fact that they have been issued by a central bank; digital currencies, however, like cryptocurrencies, do not depend on public confidence in the issuer. As such, several factors determine its value.
Factors that determine the value of cryptocurrencies
Principles of free market economy (mainly supply and demand)
Supply and demand are the main determinants of the value of anything of value, including cryptocurrencies. This is because if more people are willing to buy one cryptocurrency and others are willing to sell, the price of that particular cryptocurrency will increase and vice versa.
The mass adoption of any cryptocurrency can come at a price. This is because many cryptocurrencies have a limited supply limit and, according to economic principles, an increase in demand without a corresponding increase in supply will lead to an increase in the price of this particular commodity.
Several cryptocurrencies have invested more resources to ensure their mass adoption, some focus on the applicability of their cryptocurrency to urgent personal life problems, as well as crucial daily cases, with the intention of making them indispensable in life. daily.
If a fiat currency, such as the USD or GBP, inflates, its price increases and its purchasing power decreases. Next, this will cause cryptocurrencies (let’s use Bitcoin as an example) to increase relative to that fiat currency. The result is that you will be able to purchase more of this fiat with each bitcoin. In fact, this situation has been one of the main reasons for the rise in Bitcoin prices.
History of scams and cyber attacks
Scams and hackers are also basic factors that affect the value of cryptocurrencies, as they are known to cause wild changes in valuations. In some cases, scammers may be the team that supports a cryptocurrency; they will bomb the price of the cryptocurrency to attract unsuspecting individuals and, when their much-earned money is invested, scammers reduce it, which then disappears without a trace.
Therefore, it is imperative to be wary of cryptocurrency scams before investing your money.
Some other factors to consider, which have an impact on the value of cryptocurrencies, are:
How the cryptocurrency is stored, as well as its usefulness, security, ease of acquisition and cross-border acceptability
Strength of the community that supports cryptocurrency (this includes funding, innovation and loyalty of its members)
Low associated risks of cryptocurrency perceived by investors and users
Market liquidity and cryptocurrency volatility
National regulations (includes the ban on cryptocurrency and ICOs in China and their acceptance as legal tender in Japan)