What Determines the Value of a Cryptocurrency
Among many other inventions that we have gotten during the 21st century, cryptocurrencies are the ones that will be present for many years in the future. People were primarily skeptical and didn’t want to accept the new payment methods. Today, when the entire world is experiencing modernization, more and more people see cryptos as a legit way to ensure financial stability.
The reason why people, even today, do not believe in cryptos is their turbulent past. Many of them had ups and downs which made many people lose a lot of money. Let’s use Bitcoin as an example. At the beginning of this year, Bitcoin managed to boost its value to more than 60 thousand dollars. 2 months after that, the value of BTC went down to around 35 thousand dollars. However, in the last couple of weeks, it once again started to grow.
All these things confuse people, and the same situation is visible when we talk about all the cryptos that exist in the world. People start to believe that crypto success is based only on luck and looks similar to gambling. Fortunately, that is far away from the truth.
Different factors determine the value of each cryptocurrency. By knowing those factors, you will easily understand which things you need to analyze when trading with cryptos. Many people simply do not recognize certain signs that even announce the price changes will appear. Because of that, let’s find out those factors together and make your path to success a lot easier.
The demand of People for Particular Crypto
Let’s use physical products as an example to explain everything properly. You start a business that sells shoes. The starting price of your products is $20. In the meantime, more and more people are coming to your online shop. Your marketing team managed to boost your brand identity which automatically affected your sales. In that case, the price of your products, as well as the value of your overall business, will grow.
Something similar happens with digital currencies. As you know, Bitcoin is the most popular one that exists today. Hundreds of thousands of people are buying and selling BTC every single day. When the demand is high, the value automatically goes up.
Presence in the Mainstream Media
Cryptocurrencies are no longer a taboo subject among people. More and more mainstream media are constantly talking about Bitcoin, Ethereum, and other stuff. Whenever new crypto appears in the news, people start to get interested and willing to invest their money. Because of that, following the latest news is one of the ways to find out which cryptos could potentially grow in the future.
However, TV is not the only place that you should follow. There are also influences on social media platforms that can influence people’s behavior and demand for current crypto. For instance, when Elon Musk only wrote #Bitcoin on his Twitter account, many people understood that as a message that they should invest in it. After only one hashtag, the price of BTC started to jump. All these details may seem irrelevant at first, but you are not even aware of how strong the influence of mainstream media, as well as influencers, is.
Production Costs Matter As Well
Okay, cryptocurrencies are completely virtual, but that doesn’t mean they do not require production. The biggest costs of all are connected with the electricity they have to spend to mine a single token or coin. On the other hand, as you probably know, mining cryptos on a basic PC is no longer possible. There is specialized hardware that you need to use to complete this part of the job. The hardware itself is expensive, and its price is jumping together with the popularity of the entire crypto industry.
When the production costs are high, they will certainly raise the value of the crypto. On the other hand, if they are not that big, then the difference won’t be too big and visible.
Let’s use Bitcoin as an example. Did you know that the algorithm of the strongest crypto ever allows only one block to be produced every 10 minutes? Well, in case more miners join the competition, the math problems they have to solve become more complex. Logically, in that case, the price also goes up! This is another factor you should put into consideration.
How Available They Are on Different Currency Exchanges
If people need to spend a lot of time to convert the traditional money to crypto as well as the crypto to traditional money, then they will probably lose interest to trade at all. The most popular exchanges in the world will allow you to convert only the most popular and reliable digital currencies. For instance, it is hard to find a currency exchange that won’t allow you to convert BTC to USD, Euro, and other currencies. That certainly influences its popularity as well as value.
Law Regulations Around the World
As mentioned, cryptocurrencies are widely accepted. However, who says that they are legal everywhere'? In many countries around the world, crypto laws are still not precisely determined. On the other hand, some countries completely banned crypto for the local people. For instance, China has some specific rules. You can own Bitcoin and trade it to a friend of a stranger. Yet, doing that through specific platforms is impossible because they are all banned. Logically, something like that negatively influenced the price of BTC.
Anyway, whenever a new country legalizes crypto, a new group of people enters the market. That increases the demand for different cryptos and automatically influences their value. Follow the latest news to see how law regulations are changing around the world and try to predict price changes before they even appear.
As you see, there is a good reason why all the cryptos have gone through many ups and downs so far. These are the strongest factors that influence their price. If following these factors seems confusing to you, then there might be a solution for your concern. You can use different programs that will reduce the risks of your investments by providing you some useful pieces of information.