How is the value of cryptocurrency determined?

Introduction

Cryptocurrencies have been functional in the digital trading market for almost a decade now. However, within recent months only, the term is gaining much wider acknowledgement. We need to understand cryptocurrencies are decentralized. Any central authority, individual or government, do not regulate them. Though they are considerably in usage on most digital trading platforms, numerous nations still need to approve such currencies as legal tender.

There are a lot of comparisons made between Fiat currencies and cryptocurrencies. Two of them have almost identical traits, such as they can be used as a means of payment to purchase services or products as well as maintain a comparable supply.

However, they differ in many ways as well as the components that define their prices; this article discusses the factors affecting crypto prices:

●     Node Count

Node count represents the measure of active wallets available on the system, which anyone can find by a simple search on the Internet. Users can quickly inspect the actual value of a digital currency

with the cryptocurrency’s total market capitalization value and node count and approximating these two factors with other currencies’ data.

●     The surge in supply and demand

Supply and demand determine the price of every tradable asset, and digital money is no exception. Crypto price goes up when there is an increase in the number of crypto buyers and sellers. 

And due to the fact that there’s a limited supply of specific cryptocurrencies, value is constantly upscaling.

The supply and demand of digital coins are also expanding because of their adoption by various global governments. Today, many nations are seeking to discover ways to implement cryptos in their systems.

●     Inflation in Market capitalization value

Market capitalization is the most precise way to determine the value of a crypto coin. If you want to know the market cap value of a specific cryptocurrency, multiply the coin’s price by its total supply.

Bitcoin seems to have the highest market capitalization value since the beginning, followed by ETH or Ether, which is an inherent token of the Ethereum blockchain. Also, market cap value varies for cryptocurrencies due to various factors. 

●     Global Adoption 

When a currency gets mass adoption, 

Undoubtedly there’ll be a rise in its value that can reach its maximum potential. As we already know that most cryptocurrencies are only available in limited numbers; when demand increases, a direct effect is seen on its price.

In the near future, if cryptocurrencies become one of the prime mediums to carry out financial transactions, their price growth would be boundless.

The use of cryptocurrencies in other real-life scenarios also affects its prices, such as emerging locations where crypto payment is accepted in exchange for products or services.

●     Fluctuation in Fiat currencies prices

The value of the cryptocurrency has a direct connection with the inflation of Fiat currencies. When the value of Fiat currency drops, usually, Bitcoin value goes up. Today we experience this phenomenon since the Federal Reserve Banks, the External Commercial Borrowing, and other central banks are now printing additional amounts of money and maintaining low-interest rates.

●     Production expenses

Every cryptocurrency has distinct production costs. Today, Bitcoin needs the highest creation cost. The price depends on the energy and resources used for cryptocurrency mining, including kinds of manufacturing hardware units used such as CPU or GPU, use of servers, type of cooling system used, etc. 

The crypto community believes that the use of more energy in the production of a cryptocurrency increases its safety. This statement is confirmed as the more complex the calculation to create crypto, the harder it becomes for external entities to hack or steal the crypto coin. And for carrying out a high level of math, mass-energy use is a must. However, the crypto community is seeking more efficient ways to perform the processes due to energy shortage concerns.

The quick ascent in the fame of cryptocurrencies has made controllers argue about how to categorize these digital currencies. The Commodity Futures Trading Commission (CFTC) deems cryptocurrency a product. While the Securities and Exchange Commission (SEC) groups cryptocurrencies as insurances.

In spite of the rising market capitalizations, the chaos over which controller will set the principles for cryptocurrencies is causing more uncertainty in the prices.

Moreover, the market has seen the implementation of numerous monetary items that utilize specific cryptocurrencies as an essential asset, for example, ETFs

prospects and different subsidiaries. It affects crypto costs in two ways:

● It gives crypto admittance to investors who are not capable of buying an actual cryptocurrency, hence broadening demand. 

● It can diminish value instability by permitting institutional investors, who acknowledge possibilities of Bitcoin value being overstated or underestimated, to utilize their skills to gamble in which direction crypto coins’ value will move.

With a reasonable possibility of Bitcoin and other cryptocurrencies soon becoming a mainstream payment and trading method, the government seems to be interested in adding them under governmental regulations. This practice will turn digital currency into a centralized exchange, causing a remarkable influence on its price.

●     Involvement of high-profile personalities

It sounds absurd, but cryptocurrency price gets highly influenced by just a few words of famous personalities. Elon Musk, CEO of Tesla, is one of the best examples. In 2021, Musk tweets about his investing in dogecoin caused the rapid surge in dogecoin buyers. Likewise, cumrocket prices also seem to experience a rise of 400% since June 2021, when Musk showed his support for it through his tweets. 

On the other hand, due to environmental concerns, when Musk announced breaking up associations with Bitcoin, the most famous cryptocurrency saw a drop of over 7% globally.

Conclusion 

It’s a fact that cryptocurrencies are highly 

unstable due to their drastic fluctuations on a global scale. Even after this, crypto enthusiasts and techies are showing a continuous interest in digital ledger and blockchain technologies. Also, governments are actively trying to find a way to bring digital currencies under regulations. We can assume that cryptocurrencies will be getting better executions in the area of financial transactions in the future.

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