Cryptocurrencies are the newest & # 39; great thing & # 39; in the digital world and are now recognized as part of the monetary system. Enthusiasts have even described it as & # 39; the money revolution & # 39 ;.
In clear terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, the majority of which is created through special calculation techniques that & # 39; mining & # 39; are called.
The acceptance of currencies, such as the US dollar, pound sterling and euro, as legal tender is because they are issued by a central bank; however, digital currencies, such as cryptocurrencies, do not depend on public confidence in the issuer. As such, various factors determine its value.
Factors that determine the value of cryptocurrencies
Principles of a free market economy (mainly supply and demand)
Supply and demand is an important determining factor for the value of everything of value, including cryptocurrencies. This is because if more people are willing to buy a cryptocurrency and others are willing to sell, the price of that particular cryptocurrency will rise, and vice versa.
Mass acceptance of every cryptocurrency can shoot its prize to the moon. This is due to the fact that many cryptocurrencies have limited their supply to a certain limit and, according to economic principles, an increase in demand without a corresponding increase in supply will lead to a price increase for that specific commodity.
Multiple cryptocurrencies have invested more resources to ensure their massive acceptance, with some focusing on the applicability of their cryptocurrency to urgent personal life issues, as well as crucial daily cases, with the intention of making them indispensable in everyday life.
If a fiat currency, such as the USD or GBP, is inflated, its price rises and its purchasing power decreases. This then causes cryptocurrencies (let’s use Bitcoin as an example) to increase compared to that fiat. The result is that you can get more of that fiat with every bitcoin. In fact, this situation was one of the main reasons for Bitcoin’s price increase.
Scams and history of cyber attacks
Scams and hacks are also key factors that influence the value of cryptocurrencies, because they are known to cause wild fluctuations in valuations. In some cases, the team that supports a cryptocurrency may be the scammers; they pump the price of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the price is shortened by the scammers, who then disappear without a trace.
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It is therefore necessary to be careful with the cryptocurrency scam before you invest your money.
Some other factors to consider that affect the value of cryptocurrencies include:
- The way in which the cryptocurrency is stored, as well as the utility, security, ease of use and cross-border acceptance
- Strength of the community that supports the cryptocurrency (this includes financing, innovation and the loyalty of its members)
- Low associated risks of the cryptocurrency as perceived by investors and users
- News sentiment
- Market liquidity and volatility of the cryptocurrency
- Country regulation (this includes the ban on cryptocurrency and ICO & # 39; s in China and its acceptance as legal tender in Japan)