Cryptocurrencies are the latest “big thing” in the digital world and are now recognized as part of the monetary system. In fact, enthusiasts have labeled it as “the money revolution.”
In plain terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, the majority of which have been created through special computing techniques called “mining”.
The acceptance of currencies, such as the US Dollar, the British Pound and the Euro, as legal tender is because they were issued by a central bank; digital currencies, however, like cryptocurrency, are not dependent on the trust and confidence of the public on the issuer. As such, many factors determine its value.
Factors that determine the value of Cryptocurrencies
Principles of Free Market Economics (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 cryptocurrency will increase, and vice versa.
Mass adoption
Mass adoption of any cryptocurrency can shoot its price to the moon. This is due to many cryptocurrencies that have their supply capped at a particular limit and, according to economic principles, an increase in demand without a corresponding increase in supply leads to an increase in the price of that particular commodity.
Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to personal life problems, as well as crucial cases of the day, with the intention of making indispensable in everyday life.
Fiat Inflation
If a fiat currency, such as the USD or GBP, becomes inflated, its price increases and its purchasing power decreases. This then causes cryptocurrencies (let’s use Bitcoin as an example) to increase relative to that fiat. The result is that you will be able to acquire more than that fiat with each bitcoin. In fact, this situation has been one of the main reasons for the increase in the price of Bitcoin.
Scams and Cyber Attack History
Scams and hacks are also core factors that affect the value of cryptocurrencies, as they are known to cause wild swings in valuations. In some cases, the team that supports a cryptocurrency can be scammers; Pump up the price of cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the price is shortened by scammers, who then disappear without a trace.
It is therefore imperative to be aware of cryptocurrency scams before investing your money.
Some other factors to consider, which have an impact on the value of cryptocurrencies, include:
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Way in which cryptocurrency is stored, as well as its utility, security, ease of purchase and cross-border acceptability
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Strength of the community that supports the cryptocurrency (this includes funding, innovation and loyalty of its members)
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Low risks associated with cryptocurrency as perceived by investors and users
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Sense of the news
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Market liquidity and cryptocurrency volatility
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Country regulations (this includes the ban on cryptocurrency and ICOs in China and their acceptance as legal tender in Japan)