Currencies are only usable when they have a store value.Simply put, currencies can be counted on reliably only when they maintain relative value over time. Basically currencies are only reliable when they maintain consistent value over time. That situation is also valid for cryptocurrencies as well.
Dissimilar to the fiat currency which it’s value is determined by central banks and governments, digital currencies that decentralized are not only resistant to censorship also can’t shut down because there is not a third party such as central banks or government. Because they are decentralized nature, values of cryptocurrencies is not effected by any third parties. If you are new to the world of cryptocurrency then you probably wonder what does determinate the value of cryptocurrencies? Then just keep reading.
Situations that Determinate Value of Cryptocurrencies
Demand and Supply:
Demand and supply is one of the most significant determinants when it comes to value cryptocurrencies. The value of cryptocurrency drops because of high token supply of cryptocurrency with little demand for users and traders.
Whereas limited supply of any specific cryptocurrency that is high in demand increases the value remarkably. In this way the value of cryptocurrencies is always balanced between factors of demand and supply.
Infrequency and Price:
The infrequency of cryptocurrencies increase their price. That is why infrequency is an important factor that determine the values of cryptocurrencies. For example because of the relatively low and fixed number of Bitcoin which is 21million due to this situation it has highly increased the price of Bitcoin lately.
Because of its built-in infrequency,Bitcoin which is one of the leader cryptocurrencies that is considered as a “ Digital Gold” by its advocates. They suggest that Bitcoin has the potential to become ideal money having a stable monetary standard.
Because of the coronavirus pandemic usage of Fiat money is decreased and the interest for cryptocurrencies increased. Bitcoin’s price have fallen from a value $7,600 to $5,300. There is also a prediction that covid-19 will reverse everything up to down as low as US$7,200 from US$ 10,500.
Cryptocurrencies value depends its benefits as well. Basically cryptocurrencies value and price depend on how useful it is. Also depend on the supply and demand of cryptocurrencies as well. For example when a user trusts cryptocurrencies and trade units of currency in a reliable way for purchasing goods and services, the merchant increasingly accepts it. As a result the transaction volume of cryptocurrency increases and for that reason its demand as well. Thats why due to a decrease in the utility of cryptocurrency, its demand decreases. In the other hand increase in its supply the value of cryptocurrency drops.
Value of cryptocurrencies increases when the currencies gain mass adoption. But why? The reason is many of the cryptocurrencies are limited, which increases their demand leading to an increase in their prices.
In the other hand for the mass adoption of cryptocurrencies the applicability of those currencies in the real-world situation is crucial. While more places that adopt cryptocurrencies payment will determine its value.
Node Count is an another main point that determines the value of cryptocurrencies. Node Count basically is a measurement of how many active wallets exist on the network.
In order to find out the value and the fair price of any cryptocurrency, we can count nodes as well as market capitalization. We can compare these two indexs with other cryptocurrencies to find out their value.
Cost of production:
One of the factors that determines the value of cryptocurrencies is its cost of production. For an example Bitcoin has the highest cost of production. This is the reason why to the energy and resources used in Bitcoin mining which increases the value of it. Higher the production cost of cryptocurrency, the higher is the value of cryptocurrency.