Cryptocurrencies are the latest “big thing” in the digital world and are now recognized as part of the monetary system. In fact, fans called it a “money revolution.”
Clearly, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created through special computing methods called “mining.”
The acceptance of currencies such as the US dollar, the British pound and the euro as legal tender is their issuance by the central bank; Digital currencies, such as cryptocurrencies, do not depend on the public’s trust and confidence in the issuer. Thus, its value is determined by several factors.
Factors determining the value of cryptocurrencies
Principles of a Free Market Economy (Mainly Demand and Demand)
Demand and demand are key determinants of the value of everything of value, including cryptocurrencies. Because if more people agree to buy cryptocurrency and others agree to sell it, the price of that cryptocurrency will increase and vice versa.
Mass Adoption
The mass adoption of any cryptocurrency can devalue it. This is due to the fact that the supply of many cryptocurrencies is limited to 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 price of that particular commodity.
Many cryptocurrencies have invested more resources to ensure their mass adoption, while others have focused on current personal issues as well as important day-to-day work with the intention of making cryptocurrencies invaluable in everyday life.
Fiat inflation
If a fiat currency such as the USD or GBP inflates, its price rises and purchasing power falls. This will then lead to an increase in cryptocurrencies (for example, let’s use Bitcoin) relative to that fiat. The result is that with each bitcoin you will be able to get more out of this fiat. In fact, this situation has been one of the main reasons for the rise in the price of Bitcoin.
History of Frauds and Cyber Attacks
Fraud and hacking are also key factors affecting the value of cryptocurrencies, as they are known to cause wild changes in valuations. In some cases, the team that supports cryptocurrency can be scammers; they will no doubt pump up the price of the cryptocurrency to attract individuals, and when the hard-earned money is deposited, the price is reduced by fraudsters and they disappear without a trace.
That’s why it’s important to be wary of cryptocurrency scams before investing your money.
Some other factors to consider that affect the value of cryptocurrencies include:
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How to store cryptocurrency, as well as its usefulness, security, ease of access and cross-border acceptability
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The strength of a community that supports cryptocurrency (this includes funding, innovation, and member loyalty)
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Low associated risks of cryptocurrency accepted by investors and users
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News mood
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Market liquidity and cryptocurrency volatility
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Country rules (including banning cryptocurrencies and ICOs in China and making them legal tender in Japan)