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What Determines the Value of Cryptocurrencies

What Determines the Value of Cryptocurrencies

Knowledgebase
27/04/2020 by Koinal
834
Any currency is usable only when it has a store of value. Simply put, currencies can be counted on reliably only when they maintain relative value over time. This stance holds true for cryptocurrencies as well.
What Determines the Value of Cryptocurrencies

Unlike fiat currency whose value is determined by central banks and governments, these decentralized digital currencies are not only resistant to censorship. But also, nothing can shut them down as there is no third party such as central banks or the government involved. Due to their decentralized nature, the value of cryptocurrencies is not influenced by third parties.

If you are new to this cryptocurrency world and are unaware of what determines the value of cryptocurrencies? Then just read on! This article will help you find out the key determinants for the value of cryptocurrencies.  

Factors that Determines the Value of Cryptocurrencies

Supply and Demand

When it comes to the value or price of cryptocurrencies, supply and demand are some of the most significant determinants. Due to the high token supply of cryptocurrency with little demand for users and traders, the value of cryptocurrency drops.

In contrast, the limited supply of any specific cryptocurrency, which is high in demand, increases its value significantly. Thus, the value of cryptocurrencies is always a balance of both supply and demand factors.

Scarcity and Price

Also, the scarcity of cryptocurrencies drives up their prices. Therefore, scarcity is one important factor that determines the value of cryptocurrencies. For instance, due to the relatively low and fixed number of Bitcoin that is 21 million, it has highly increased the price of Bitcoin lately.

Due to its built-in scarcity, Bitcoin, which is one of the leading cryptocurrencies, is considered as ‘Digital Gold’ by its advocates. They suggest that Bitcoin has the potential to become ideal money having a stable monetary standard.

In the present time of crisis due to the coronavirus outbreak, the value of cryptocurrencies has seen a plunge. Precisely, Bitcoin prices have fallen from a value of $7,600 to $5,300. It is also predicted that coronavirus will reverse head and shoulder pattern points to as low as US$7,200 from US$ 10,500.

Utility

The value of cryptocurrencies also depends on its utility. More simply, how useful cryptocurrency is determined its value and price. It again depends on the supply and demand of cryptocurrencies. For instance, when a user trusts cryptocurrencies and trade units of currency in a reliable way for purchasing goods and services, the merchant increasingly accepts it.

As a result, the transaction volume of cryptocurrency increases and thereby, its demand. In contrast, due to a decrease in the utility of cryptocurrency, its demand decreases. However, due to an increase in its supply, the value of cryptocurrency drops.   

Mass Adoption

The value of cryptocurrencies upsurges when these currencies gain mass adoption. Why is this so? This is because many cryptocurrencies are scarce, which increases their demand leading to an increase in their prices. 

However, for the mass adoption of cryptocurrencies, the applicability of these currencies in the real-world situation is crucial. In other words, the more places that adopt cryptocurrencies as means of payment will determine its value. 

Node Count

Another important factor that determines the value of cryptocurrencies is node count. It is basically a measurement of how many active wallets exist on the network.

In order to find out the value and fair price of any specific cryptocurrency, one can search for its node count as well as market capitalization. You can compare these two indicators with other cryptocurrencies to find out their value.

Production Cost

Another factor that determines the value of cryptocurrencies is its production cost. For instance, Bitcoin has the highest cost of production among other existing currencies. This is due to the energy and resources used in Bitcoin mining that ultimately increases the value of Bitcoin. Thus, the higher the production cost of cryptocurrency, the higher the value of cryptocurrency.

Regulations

Once the cryptocurrency comes in the mainstream, the chances for governmental regulations will become higher. One must know that digital currencies will become more centralized due to these regulations. This can highly impact the value of cryptocurrencies.

Final Verdict

Now that you know all the key factors that determine the value of cryptocurrencies, some of you might be willing to buy cryptocurrencies. If yes, head to Koinal immediately and start buying your cryptocurrency today.

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