FACTORS INFLUENCING CRYPTOCURRENCY VALUE

FACTORS INFLUENCING CRYPTOCURRENCY VALUE

So we see that while governments can influence the value of fiat currencies through their policies, the value of cryptocurrencies cannot be influenced by any central bank as they are decentralized.

For cryptocurrencies, their value is determined by a variety of factors, with the most important of them being the role of supply and demand.

Supply and demand, in fact, are basic economic factors that determine the price of most things in the market. When there are more people who are willing to buy something than those who are looking to sell, the price of that item usually goes up. Considering that cryptocurrencies like bitcoins and other altcoins have a limited supply, any growth in their demand has a snowballing effect on the value at which they are traded. This is why cryptocurrencies that have a limited supply for trading usually trade at higher prices. Scarcer currencies like bitcoin, thus, are more coveted than cryptocurrencies that are less scarce.

Usability and adoption are also factors when it comes to determining the value of a cryptocurrency. The more sellers that accept a cryptocurrency as a means of payment, the more its value will rise.

Cryptocurrency value is also closely associated with the competition the currency has from other cryptos, and the number of crypto exchange platforms it is featured on. Most big cryptocurrency platforms feature all the leading cryptocurrencies in the world.

Another factor that determines crypto value is the cost of production associated with it. Most cryptocurrencies are generated through ‘mining’, where miners attempt to solve a cryptographic problem by using considerable computational power.

As demand for mining more bitcoins or altcoins increases, the cryptographic problem becomes ever more complicated, adding to the cost of producing a new bitcoin.