June 9, 2022
Get Started
The value of cryptocurrencies is constantly fluctuating, making an investment an intriguing, but volatile, venture. There are plenty of stories of people who became rich, and many more of those who lost a significant amount of money. It is common to see newsfeeds stating the current value as new highs and lows are reached.
Understanding how cryptocurrency gets its value makes it easier to predict the upswings and downswings of certain coins. It can be an excellent opportunity to invest your money and prepare for the future if you know the various factors to pay attention to.
What Is Cryptocurrency?
A cryptocurrency is a digital asset that is used as a means of exchange in the same way that fiat currencies function. These digital currencies can be used to purchase goods and services or send them to friends and family. All transactions are conducted via the internet and take place nearly instantly, all around the globe. Cryptocurrencies are powered by blockchain and decentralized, meaning they have less government regulation and greater flexibility, with fewer associated fees.
How Do Cryptocurrencies Gain Their Value?
Trading and spending cryptocurrency is a growing trend. Purchasing a token is similar to buying stock in a company. The value of crypto is directly affected by the supply available for purchase, as well as user demand for it.
Supply and Demand
The supply of any cryptocurrency depends on two factors. The first is the number of new coins that are available to be mined and added to the market. The second is the number of coins that are actively in circulation from owners willing to sell. Demand depends on many factors, including the usefulness of the coin, the level of scarcity, and the expansion of future technology and applications.
Coin Utility
A crypto coin must be useful and function well for it to be in demand on the market. Buyers of cryptocurrencies look at the cost of trading fees, speed of transactions, number of businesses that accept crypto as payment, and the use of smart contracts. The ease of use is another consideration. The cryptocurrency must be accessible to be viewed as useful and valuable. This includes making exchanges and virtual wallets available that are simple to navigate and complete transactions.
As cryptocurrencies are becoming more widely used, the demand increases. Many buyers also choose to purchase coins as an investment. The more coins that are bought, the higher the demand rises.
Coin Scarcity
Coin scarcity has a big impact on value. When demand exceeds the supply, value skyrockets. Cryptocurrencies have a set number of coins that are available now and that will be made available in the future. Some even utilize a method called burning that destroys a portion of the available coin supply, further elevating the value due to scarcity.
User Impact
Talk and opinions surrounding cryptocurrencies also contribute to their values. Media coverage and social media discussions bring more attention to crypto. Starting a conversation creates a buzz and gets more individuals interested in investing.
Mining
There are other ways that users have a direct impact on the value of cryptocurrencies. One of these is mining. Users can increase their profits through mining and also impact the supply of a specific digital currency.
Mining requires the use of a computer to verify the subsequent block of a blockchain. The work for this is rewarded in cryptocurrency tokens. Mining also takes into account the cost of production. It takes a lot of time and effort, as well as expensive equipment to mine cryptocurrency. The cost of mining leads to a greater value for the digital currency.
Exchanges
Cryptocurrencies are bought, sold, and traded by most users, primarily on exchanges. One way that a particular coin’s value is calculated by users is the accessibility for making transactions. A valuable coin is available for trade on a range of popular exchanges and transactions must be easy to complete.
Competition
More cryptocurrencies are being developed and available for purchase all the time. The number of digital currencies to choose from affects price and value. Competition can drive prices down when the market gets too saturated and users have their pick of which company to invest in.
However, the finite nature of crypto means that well-known currencies are typically still high in demand. Newer currencies also must prove their worth to get users interested in considering them as a real option. It takes effort to gain momentum and become a viable competitor in the market.
Perceived Project Value
The worth and price of a cryptocurrency coin itself isn’t the only thing that investors look at. Another aspect of its overall value is the company and project that the crypto coin is associated with. The most sought-after coins are part of growing companies that constantly seek out new partnerships to expand.
Technological Developments
In the same way, improved technology is a sign that a cryptocurrency holds high value and is worth the cost of purchase. Companies that continue to develop new applications to use their digital currency, and those that make adjustments to software programs for a more user-friendly experience are seen as continuing to build the value of their crypto.
Market Cap
The market cap should be considered when discussing the value of any cryptocurrency. Market cap can be calculated by multiplying the current supply in circulation by the price of each individual coin. This is a better indication of the total value of a specific cryptocurrency, instead of looking strictly at the price of each coin.
Cryptocurrencies are believed by many to be the future of money. They continue to gain popularity due to their value as an investment and the possibility that they may one day revolutionize and modernize the current payment system. Sign up with a reputable exchange like Rubix today to start trading and building your own investment for the future.