Cryptocurrencies are the latest ‘big thing’ in the digital world and also have now been named being area of the monetary system. In fact, enthusiasts have tagged it as ‘the revolution of money’.
In clear terms, cryptocurrencies are decentralized digital assets that could be exchanged between users without the need for a central authority, the majority of which being created via special computation techniques known as ‘mining’.
The acceptance of currencies, like the US Dollar, Great British Pound and the Euro, as legal tender is basically because they have been issued by a central bank; digital currencies, however, such as cryptocurrencies, are not reliant on the confidence and trust of the general public on 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 is really a major determinant of the worthiness of anything of value, including cryptocurrencies. Simply because if more people are prepared to buy a cryptocurrency, and others are willing to sell, the cost of that particular cryptocurrency will increase, and vice versa.
Mass adoption of any cryptocurrency can shoot its price to the moon. That is due to many cryptocurrencies having their supply capped at a specific limit and, in accordance with economic principles, an increase popular without a corresponding upsurge in supply will lead to a price increase of that particular commodity.
Multiple cryptocurrencies have invested more resources to make sure their mass adoption, with some concentrating on the applicability of their cryptocurrency to pressing personal life issues, and also crucial day-to-day cases, with the intention of earning them indispensable in everyday life.
If a fiat currency, just like the USD or GBP, becomes inflated, its price rises and its own purchasing power drops. This will then cause cryptocurrencies (let’s use Bitcoin for example) to increase regarding that fiat. The result is you will be able to acquire more of that fiat with each bitcoin. In fact, this situation has been one of the major known reasons for Bitcoin’s price increase.
Scams and Cyber Attack History
Scams and hacks may also be core factors affecting the value of cryptocurrencies, as they are known to cause wild swings in valuations. Sometimes, the team backing a cryptocurrency could be the scammers; they’ll pump the price of the cryptocurrency to attract unsuspecting individuals so when their hard-earned money is invested, the price is shortened by the scammers, who then disappear without a trace.