Cryptocurrency is the latest ‘big thing’ in the digital world and is now recognized as part of the currency system. In fact, enthusiasts have tagged it as a ‘money revolution’.
Clearly, cryptocurrency is a decentralized digital asset that can be exchanged between users without the need for any central authority, much of which is created through a special calculation technique referred to as ‘mining’.
The acceptability of currencies such as the US dollar, the Great British pound and the euro as legal tender because they have been issued by the central bank; Digital currencies, such as cryptocurrency, do not depend on the public’s trust and confidence in the issuer. As such, various factors determine its value.
The factors that determine the value of cryptocurrency
Principles of free market economy (mainly supply and demand)
Supply and demand is a major determinant of the value of anything valuable, including cryptocurrency. This is because if more people are willing to buy a cryptocurrency, and others are willing to sell, then the price of that particular cryptocurrency will increase and vice versa.
If any cryptocurrency is widely accepted, its price may go to the moon. This is because of the many cryptocurrencies whose supply is limited to a certain limit and according to economic policy, the increase in demand without a similar increase in supply leads to an increase in the price of that particular product.
Multiple cryptocurrencies have invested more resources to ensure their widespread adoption, with some focusing on the applicability of their cryptocurrencies to personal life issues, as well as in important everyday cases, with the intention of making them essential in everyday life.
If a Fiat currency, such as the USD or GBP, inflates, its price increases and its purchasing power decreases. This will increase the cryptocurrency (let’s use Bitcoin as an example) in the case of Fiat. The result is that with every bitcoin you will be able to earn more of that Fiat. In fact, this situation is one of the main reasons for the rise in the price of Bitcoin.
History of scams and cyber attacks
Scams and hacks are also key factors affecting the value of cryptocurrencies, as they cause drastic changes in valuation. In some cases, a team supporting a cryptocurrency can be a scammer; They will pump up the value of the cryptocurrency to attract suspects, and when their hard-earned money is invested, the scammers shorten the value, which then disappears without a trace.
So it is important to be aware of cryptocurrency scams before investing your money.
Some other factors that affect the value of cryptocurrency need to be considered, including:
The manner in which cryptocurrency is stored, as well as its usefulness, security, ease of acquisition and cross-border acceptability
Cryptocurrency support community strengths (including financing, innovation and loyalty of its members)
Less related risk of cryptocurrency perceived by investors and users
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Cryptocurrency market liquidity and volatility
Country regulations (including the prohibition of cryptocurrency and ICO in China and its acceptance as legal tender in Japan)