You’re probably wondering why crypto is so valuable and what makes it valuable. Suppose there’s one thing you should know about cryptocurrency. In that case, it thrives in a very volatile market, which means you can believe the stories that make the headlines of some people who hit the jackpot and others who have experienced major losses.
The most important thing you should remember is that crypto gains value on many exchange platforms based on supply and demand. It is the essence of crypto, after all. The supply of crypto will depend on how many new coins are mined and how many coins in total will be produced for the market.
The demand for crypto will then depend on factors such as its utility. If the crypto asset you own has many purposes, like transactions for daily goods and business investments, it is considered useful. Useful assets mean a demand for them in the market, thus, increasing their value.
Cryptocurrency is now a global phenomenon that only continues to grow as more people are incorporating it into their daily lives- from investments, transactions, and other utility uses. So how does crypto gain value?
This article will talk about how cryptocurrency gains value and how you can benefit from it.
Why is crypto relevant in today’s world?
Cryptocurrency is a digital asset that only started to gain traction in 2017. Although crypto has been around for longer, it was only a few years back that people started to take it seriously. Today, users can send cryptocurrencies between two platforms using private and public keys with little to no processing fees.
Another thing that makes crypto relevant is its use of blockchain mediums and internet-based cryptography to conduct secure and transparent financial transactions. There are many more ways people can earn in the crypto industry, such as trading tokens and minting and collecting NFTs. The main thing about crypto is that a single authority does not govern its monetary system, and the users have more control over their money than decades ago.
Does liquidity play a role in crypto prices?
Liquidity is your ability to purchase and sell a digital asset without impacting its market price. This means that crypto with higher market caps is considered more liquid, and people can buy and sell assets in large quantities without causing a price movement.
As crypto gains more liquidity, the market prices are less likely to be volatile, which is in favor of the investors. The most liquid cryptocurrency in the market as of now is BTC, and it has the highest market cap of all the cryptos in the market.
So the answer is yes, liquidity does play a role when it comes to crypto prices. If the liquidity of certain crypto is low, there is a high chance that it will undergo high volatility sooner or later. On the other hand, if crypto has high liquidity like BTC, the market price will be less likely to be volatile, making it more enticing for people to put their investments there.
3 Factors That Affect How Crypto Gains Value
Now that you know some of the basic and essential things about the value of crypto, you can then proceed to understand the different factors that impact how crypto gains value in the market.
Programmable Money
The crypto market is known for moving in a uniform direction. Fundamentals such as the technology used and the use cases of crypto are two reasons that explain how crypto gains value. For example, people have predicted that the Ethereum market cap will outperform BTC since ETH’s network supports programmable money as a foundation for their digital currency.
Many people favor this since many developers can now develop their own decentralized finance applications and launch their own NFT collections. This means multiple sources of income from programs, thus increasing the value of ETH.
Supply and Demand
As mentioned earlier, supply and demand play a huge role in affecting the value of crypto. It will essentially gain value if the demand is high for a cryptocurrency, and as the supply lessens, scarcity will make it even more valuable for investors.
Macroeconomic Events
The state of the economy can cause swings in the crypto market, especially when there is extreme market volatility. Due to the decentralized and globalized nature of cryptocurrencies of crypto, they can be easily affected by macroeconomic events worldwide.
Periods of economic growth can urge individuals to buy crypto assets at a higher value. In contrast, economic recessions can cause investors to be skittish when investing in the crypto market. The attitudes of the investors towards taking risks will also depend a lot on the appeal of alt currencies like cryptocurrency. When the local fiat currency is volatile, many people turn to crypto investments to have alternative sources of income that do not rely on third-party organizations.
Frequently Asked Questions
Is Bitcoin money?
Bitcoin is often called “digital gold” because it shares many of the same characteristics as gold – it is scarce, portable, divisible, and durable. Unlike fiat currencies (like the US dollar), no central authority controls the supply of Bitcoin. The protocol is designed to create new Bitcoins at a predetermined and steadily decreasing rate. This system mimics the natural scarcity of precious metals and provides a disinflationary economic incentive for early adopters.
Is Bitcoin fairly valued?
There is no easy answer to this question. Bitcoin is a new and unique asset class, and its value is not as easily determined as stocks or commodities. Some people believe it is undervalued, while others believe it is overvalued.
It’s important to remember that Bitcoin is still in its early stages, and there is a lot of potential for growth in the years to come. As more people start using Bitcoin and more businesses accept it as payment, its value will likely increase.
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