Cryptocurrencies are the latest ‘big thing’ in the digital world and have now been recognized as being part of the monetary system. In reality, fans have tagged it as ‘the revolution of money’.
In clear terms, cryptocurrencies are decentralized digital assets that may be exchanged between customers without the necessity for a central authority, the keyity of which being created through special computation methods referred to as ‘mining’.
The acceptance of currencies, like the US Dollar, Great British Pound and the Euro, as authorized tender is because they’ve been issued by a central bank; digital currencies, however, similar to cryptocurrencies, usually are not reliant on the arrogance and trust of the public on the issuer. As such, a number of factors decide its value.
Factors that Determine the Value of Cryptocurrencies
Rules of Free Market Financial system (Mainly Supply and Demand)
Supply and demand is a major determinant of the worth of anything of worth, together with cryptocurrencies. This is because if more individuals are willing to purchase a cryptocurrency, and others are willing to sell, the price of that particular cryptocurrency will increase, and vice versa.
Mass Adoption
Mass adoption of any cryptocurrency can shoot its price to the moon. This is because of many cryptocurrencies having their provide capped at a particular limit and, in line with economic principles, a rise in demand without a corresponding increase in supply will lead to a price increase of that particular commodity.
A number of cryptocurrencies have invested more resources to ensure their mass adoption, with some specializing in the applicability of their cryptocurrency to pressing personal life issues, as well as crucial day-to-day cases, with the intention of making them indispensable in on a regular basis life.
Fiat Inflation
If a fiat currency, like the USD or GBP, becomes inflated, its price rises and its buying energy drops. This will then cause cryptocurrencies (let’s use Bitcoin for example) to increase with respect to that fiat. The result’s that you will be able to amass more of that fiat with each bitcoin. Actually, this situation has been one of the main reasons for Bitcoin’s price increase.
Scams and Cyber Attack History
Scams and hacks are also core factors affecting the value of cryptocurrencies, as they’re known to cause wild swings in valuations. In some cases, the team backing a cryptocurrency stands out as the scammers; they will pump the value of the cryptocurrency to attract unsuspecting individuals and when their hard-earned cash is invested, the value is shortened by the scammers, who then disappear without a trace.
It’s due to this fact imperative to be careful of cryptocurrency scams before investing your money.
Another factors to consider, that have an impact on the value of cryptocurrencies, embrace:
Method in which the cryptocurrency is stored, as well as its utility, security, ease of acquisition and cross-border acceptability
Energy of the community backing the cryptocurrency (this contains funding, innovation and the loyalty of its members)
Low related risks of the cryptocurrency as perceived by buyers and customers
News sentiment
Market liquidity and volatility of the cryptocurrency
Country rules (this includes the ban of cryptocurrency and ICOs in China and its acceptance as legal tender in Japan)
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