How does cryptocurrency gain in value?

Cryptocurrencies are the latest «big thing» in the digital world and are now recognized as part of the monetary system. In fact, enthusiasts have called it a «money revolution.»

Simply put, cryptocurrencies are decentralized digital assets that can be traded between users without the need for central authority, the majority of which are created through special computational techniques called «mining».

The acceptance of currencies, such as the US dollar, the pound sterling and the euro, as legal tender is due to the fact that they have been issued by a central bank; However, digital currencies, such as cryptocurrencies, are not dependent on public trust in the issuer. Thus, several factors determine its value.

Factors that determine the value of cryptocurrencies

Principles of free market economy (mainly supply and demand)

Supply and demand are 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 rise, and vice versa.

Mass adoption

The mass adoption of any cryptocurrency can send its price skyrocketing. This is because many cryptocurrencies have their supply capped at a particular limit, and according to economic principles, an increase in demand without a corresponding increase in supply will cause the price of that particular commodity to increase.

Several cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing issues in personal life, as well as crucial cases in everyday life, with the intention to make them indispensable in daily life.

Fiat Inflation

If a fiat currency, such as USD or GBP, becomes inflated, its price increases and its purchasing power decreases. This will then cause cryptocurrencies (take bitcoin as an example) to rise against that fiat. The result is that you will be able to acquire more fiat with each bitcoin. In fact, this situation was one of the main reasons for Bitcoin’s price increase.

Scams and history of cyberattacks

Scams and hacks are also key factors affecting the value of cryptocurrencies, as they are known to cause wild swings in valuations. In some cases, the team backing a cryptocurrency may be the crooks; 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.

It is therefore imperative to be wary of cryptocurrency scams before investing your money.

Some other factors to consider, which impact the value of cryptocurrencies, include:

• How cryptocurrency is stored, as well as its usefulness, security, ease of acquisition, and cross-border acceptability

• Strength of the community supporting the cryptocurrency (this includes funding, innovation, and loyalty from its members)

• Low risks associated with cryptocurrency as perceived by investors and users

• news feeling

• Market Liquidity and cryptocurrency Volatility

• National regulations (this includes banning cryptocurrency and ICOs in China and accepting it as legal tender in Japan)