How does cryptocurrency gain value?

Cryptocurrencies are the latest “big thing” in the digital world and are now recognized as part of the monetary system. In fact, fans have labeled it a ‘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 through special computing techniques called “mining”.

The acceptance of currencies such as currencies, the US dollar, the British pound and the euro as legal tender is due to the issuance of central banks; digital currencies, however, such as cryptocurrencies, are not in the public’s trust and confidence in the issuer. Therefore, several factors determine its value.

Factors that determine the value of cryptocurrencies

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

It is the main determinant of the value of anything that is worth supply and demand, including cryptocurrencies. That is, if more people are willing to buy one cryptocurrency and others are willing to sell it, the price of that particular cryptocurrency will go up, and vice versa.

Mass Adoption

Massively adopting any cryptocurrency can throw its price to the moon. This is because many cryptocurrencies are limited in a certain supply limit and, according to economic principles, an increase in demand will lead to an increase in the price of that particular commodity without a corresponding increase in supply.

Multiple cryptocurrencies have invested more resources to ensure their massive adoption, with some focusing on the applicability of their cryptocurrencies to serious personal life problems, as well as in crucial day-to-day cases, with the aim of making them essential in everyday life.

Fiat Inflation

If a Fiat currency, such as the USD or GBP, inflates, its price rises and its purchasing power falls. This, in turn, will lead to an increase in cryptocurrencies (let’s use Bitcoin as an example) in relation to this fiat. As a result, with each bitcoin you can get more of that fiat. In fact, this situation has been one of the main reasons for the rise in the price of Bitcoin.

Fraud and the History of Cyberattacks

Fraud and hacking are also the main factors affecting the value of cryptocurrencies, as they lead to wild changes in valuations. In some cases, the group that protects the cryptocurrency may be fraudsters; they pump the price of the cryptocurrency to attract unexpected people and when they invest hard-earned money, the scammers shorten the price, and then disappear without a trace.

So it is essential to be careful with cryptocurrency scams before investing money.

Other factors to consider that affect the value of cryptocurrencies are:

  • How to store cryptocurrency, as well as its availability, security, ease of access and cross-border acceptability

  • The strength of the cryptocurrency-sponsoring community (includes funding, innovation, and member loyalty)

  • The low 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 income in Japan)