Main factors that affect cryptocurrency value
Crypto is the main hype in the financial world nowadays as it provides access to a wide range of financial services without intermediaries and third parties. And the question “How cryptocurrency is valued” remains an important issue.
Everybody is welcome to join a crypto community and thousands of people invest in digital currency as the choice of coins is the widest today. These coins can be minted via mining (like Bitcoin, the oldest and iconic token) though this method is time and money consumptive as it requires powerful computers.
What are peculiarities of cryptocurrency and how is its value determined?
To understand the functional concept of cryptocurrency, it is necessary to figure out the difference between digital coins and fiat money. The main difference is that any fiat is backed and supported by the state government, its institutions, and legal regulations. Its value is based on the power of the state and nobody challenges this value. The fiat money is subject to governmental controls and the entire system maintains the balance between supply and demand.
The very idea of cryptocurrencies is based on their decentralization. They are beyond the law. Their supply is often fixed, and that is why they hardly undergo inflation.
But at the same time, they also have much in common. Both fiats and crypto can be traded on the exchange and be a means of payment.
How cryptocurrency is valued?
There are several factors that obviously influence the coin’s price. There are:
- Supply and demand. The correlation between them determines the price right now. The higher demand and lower supply are the higher the price will be. Or on the contrary, the lower demand and higher supply lead to the lower price.
- Token utility. If the token is indispensable on the platform that is popular among users, the price will increase.
- Mining process. If mining is not affordable to most community members, the coin will be more valuable.
These are the most obvious factors of token value formation. But there is a number of less obvious but still important points that make this or that coin more valuable.
Node counts along with market cap can help to see if the cryptocurrency is unreasonably overvalued. Just compare these two indicators with those of some other tokens and analyze the difference. Node counts also indicate the popularity of this very token and the power of its communit.
Examine on which exchanges the coin is listed. Here you can find all the necessary information on the details of a token: its market cap, ups and downs, total and maximum supply, significant changes in its circulation. You will be also able to examine information on the project team and managers. That’ll be enough to decide if this coin is worth your attention.
Users’ appreciation is what makes a cryptocurrency valuable. The price will quickly increase if a token becomes popular. However, the digital currency has just started its expansion and it’s only on the way to absolute admission. There is a number of substantial reasons that hinder the development and progress of crypto. First, it is much easier to get goods and services with fiats than with virtual tokens. But things seem to change and the more physical items and material assets the users are able to purchase with cryptocurrency the more value crypto gains.
Fluctuation of prices
Though new markets provided by the Internet appear already to have been used extensively, many people are still newbies when it comes to crypto investments. Investors’ ignorance also affects the cryptocurrency value today as strong market players with large amounts of crypto can affect the exchange rate to benefit from it. These market fluctuations form the value of definite tokens though they are not so valuable and significant compared to others.