If you are relatively new to the whole crypto scene, then one of the questions you would have would be related to the valuation of Cryptocurrency. Or to be more precise, how to earn money from Cryptocurrency. Trust me, you won’t be alone. Practically everyone who wants to learn about this new trend comes to the internet for this reason and today, I will be explaining how It works How does the value rise and fall? Should you invest in Cryptocurrency or not? And what are the factors that affect its pricing?
To make it really simple for all newbies, you need to get familiar with the supply and demand principle first for it to make sense. The good thing about learning Economy 101 is that you not only will understand how cryptocurrency works but you might also get why pricing is usually done on everything. Imagine the latest iPhone comes out and it is priced at $1,000. What would happen if no one bought it? Apple would be forced to lower the price or go into a very big loss. But on the likely chance that people will go crazy for the latest iPhone, Apple can even raise the price because the demand is so much. But what would happen if the number of iPhones dropped and were reduced to only 10 sets in the world? Then the demand would be higher because having one set would be extremely rare. This way, Apple could charge more for it and people would pay more because of the high demand. And as a general rule of Economics, the price always goes up when the supply cannot keep up with the demand.
There are multiple factors affecting the valuation of Cryptocurrencies but they can be classified into two main categories all indirectly relating to the main economics principle mentioned above. The first one would be internal factors or variables that affect Cryptocurrencies from inside the Crypto circle. Say you hold Bitcoins that are valued at $9,000 but then someone wants to pay $9,100 for the same Bitcoins, the value and price will increase. Similarly, if no one wants to trade, then it could possibly go down due to lack of demand. We have to remember that Bitcoin is not the only cryptocurrency now and that there are multiple Altcoins out in the market at the moment but Bitcoin is king which means every other Altcoin kind of depends on Bitcoin. If Bitcoin goes up in popularity, then no one would want to purchase Altcoins reducing their value. If Bitcoin goes down, then most probably every other cryptocurrency will also go down because Bitcoin is king. Only those Altcoins with tremendous support can stay up.
Now we come to the major factor of deciding the value which are the external variables. The first of which is global adaption. If everyone starts using Cryptocurrency i.e. Vendors, merchants, stores and banks, individuals would have no alternative but to adopt this form too raising its demand and value. Crypto Software’s such as Segwit can also impact on Cryptocurrency’s price. Influencers in the market can be a goldmine if they promote or a landmine if they demote Cryptocurrency. Take Akon for example. He started his own cryptocurrency and now his fans are going crazy. But on the other end of the spectrum, All of Trump’s supporters hate Bitcoin. Increasing its Network or support will raise the demand and value and vice versa. The major benefit of this cryptocurrency platform is its application on Blockchain that makes it secure but there have still been a few cases where some exchanges have been hacked. A major event like that can devalue Cryptocurrency very badly. Another major reason controlling the valuation is its utility. If a new cryptocurrency/Token/Coin in the market does the exact same thing as the previous ones, then its not going to attract any attention. Ethereum differentiated by implementing ledger technology into their system, thus making it different from Bitcoin and getting potential investors to its name. More investors mean more value and as always, Vice Versa.
So now you know what makes the value of cryptocurrency rise and fall. Remember, these are just the main reasons and that there can be multiple more reasons why value rises or drops. Should you invest in Cryptocurrency? That is completely up to you. People have made millions off of it and also lost a lot. What do you think causes the price of coins to change the most? Do you agree with the list above or is it something else? Let us know your opinions on this topic or any feedback you would want to share. See you later.
