Cryptocurrencies are the latest ‘big thing’ in the digital world, and have now been recognized as part of the monetary system. In fact, enthusiasts marked it as the “money revolution”.
In clear terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for centralized authority, most of which are created via special computation techniques referred to as mining.
The acceptance of currencies, such as the US dollar, British pound, and the euro, as a legal tender is that they are issued by a central bank; As such, there are several factors that determine their value.
Factors determining the value of cryptocurrencies
Principles of a free market economy (mainly supply and demand)
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Supply and demand are a key 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 currency will rise, and vice versa.
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The universal adoption of any cryptocurrency can be called its price on the moon. This is because many cryptocurrencies have limited their supply to a certain extent, and according to economic principles, an increase in demand without a corresponding increase in supply will increase the prices of that particular commodity.
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Multiple cryptocurrencies have invested more resources to ensure their widespread adoption, focusing on the applicability of their cryptocurrency to pressing personal life issues, as well as critical daily situations, with the aim of making them indispensable in everyday life.
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If a paper currency, like the US dollar or pound sterling, swells, its price rises and its purchasing power drops. This will then increase the cryptocurrencies (let’s use Bitcoin as an example) in relation to this. The result is that you’ll be able to get more of this with every bitcoin. In fact, this position was one of the main reasons for the rise in Bitcoin prices.
Fraud and history of cyber attack
Fraud and penetration are key factors affecting the value of cryptocurrencies, as they are known to cause huge fluctuations in valuations. In some cases, the team that supports a cryptocurrency may be 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 scammers who disappear without a trace.
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It is therefore important to be wary of encrypted scams before investing your money.
Some other factors to consider that have an impact on the value of cryptocurrencies include:
- The way cryptocurrency is stored, as well as its usefulness, security, accessibility and acceptance across borders
- The strength of the community that supports cryptocurrency (including finance, innovation and loyalty of its members)
- Reduced risk associated with cryptocurrencies as seen by investors and users
- Morale news
- Market liquidity and cryptocurrency volatility
- State regulations (including the prohibition of cryptocurrency and ICOs in China and their acceptance as a legal tender in Japan)