Cryptocurrencies are the latest “thing of interest” in the digital world and have now been recognized as part of the monetary system. In fact, enthusiasts have described it as a “money revolution”.
In clear terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, and most of them are created via proprietary computational 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, such as cryptocurrencies, do not depend on the trust and confidence of the public 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 were willing to buy a cryptocurrency, and others were willing to sell, then the price of that particular currency would rise, and vice versa.
The mass adoption of any cryptocurrency could set its price on the moon. This is because there is a certain limit for many cryptocurrencies at 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 prices of that particular commodity.
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, in addition to critical everyday situations, with the aim of making it indispensable in everyday life.
In the event of an inflated fiat currency, such as the US dollar or the British pound, its price rises and its purchasing power decreases. This will then increase cryptocurrencies (let’s use Bitcoin as an example) in regards 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 bitcoin price increase.
History of fraud and cyber attacks
Fraud and hacking are two of the primary factors affecting the value of cryptocurrencies, as they are known to cause large fluctuations in valuations. In some cases, the team behind the cryptocurrency might 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 shortened by the scammers, who then disappear without a trace.
So it is imperative to be wary of cryptocurrency scams before investing your money.
Some other factors to consider that have an impact on the value of cryptocurrencies include the following:
The way the cryptocurrency is stored, as well as its usefulness, security, ease of acquisition and acceptance across borders
The strength of the community that supports the cryptocurrency (this includes funding, innovation, and the loyalty of its members)
Reduced risk associated with the cryptocurrency as seen by investors and users
Market liquidity and cryptocurrency volatility
State regulations (this includes banning cryptocurrency and ICO in China and accepting it as legal tender in Japan)