Cryptocurrencies are the latest “big thing” 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 U.S. dollar, the British pound, and the euro, as legal tender is because they have been issued by a central bank; Digital currencies, however, like cryptocurrencies, do not depend on public confidence and trust in the issuer. As such, several factors determine its value.
Factors that determine the value of cryptocurrencies
Principles of the free market economy (mainly supply and demand)
Supply and demand are an important determinant 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 massive adoption of any cryptocurrency could shoot up its price on the moon. This is because many cryptocurrencies have their supply limited to a certain 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.
Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some focused on the applicability of their cryptocurrency to urgent problems of personal life, as well as crucial day-to-day cases, with the intention of making them indispensable. in everyday life.
If a fiat currency, such as the USD or GBP, inflates, its price increases and its purchasing power decreases. This will cause cryptocurrencies (let’s use Bitcoin as an example) to increase with respect to this fiat. 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 the price of Bitcoin.
History of scams and cyberattacks
Scams and hackers are also key factors affecting the value of cryptocurrencies, as they are known to cause wild fluctuations in valuations. In some cases, the team that supports a cryptocurrency may be the scammers; they will pump up the price of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, scammers reduce the price, 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, include:
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
Feeling the news
Market liquidity and cryptocurrency volatility
Country regulations (this includes banning cryptocurrencies and ICOs in China and accepting them as legal tender in Japan)