How does cryptocurrency gain value? Take a short trip down memory lane with us — way back to 2010 when the value of Bitcoin finally crossed the $1 mark. It seemed like a big deal then. But, oh, how far we’ve come. Fast forward to 2018 and Bitcoin’s value had soared to over $1,900 USD. And by August 2020, Bitcoin topped $11,000. Today, one Bitcoin is worth over $64,000. To put things in perspective, if you had spent $1,000 on Bitcoin back in 2010, it would be worth about $64 million today.
By now you’re probably wondering how we got here. More specifically, how does cryptocurrency gain value? And why do some cryptos continue to perform well while others are worth just pocket change?
It’s especially mysterious when you consider the fact that, unlike fiat currencies (like the paper money you use at the store), you generally can’t use crypto to pay for things in the real world. Sure, that’s slowly changing online, but it’s still limited to a handful of cryptocurrencies. You’re not exactly buying bananas with Bitcoin at the supermarket.
ENON is here to sort it all out for you. Whether you’re looking to dip your toes in the crypto waters or you’re already an investor, but you don’t quite understand why you’re not making money, we’re here to sort it all out for you.
What is Cryptocurrency?
Cryptocurrency is digital money based on what’s known as blockchain technology. There are thousands of different types of cryptocurrencies, but Bitcoin is the most popular of them all. Cryptocurrencies are popular because they’re purely digital, fully encrypted for anonymity, and decentralized — which means no central authority or governing body manages or maintains the value of each crypto.
How Does Cryptocurrency Gain Value?
How does cryptocurrency value increase? The truth is there are dozens of reasons. But if you’re just getting started in understanding crypto values, you probably don’t want to get too in the weeds in terms of investing terminology. So today, we’re going to focus on a handful of important but easy-to-understand reasons why crypto is going up.
7 Factors That Determine a Cryptocurrency Value
1. Real World Application
Why does cryptocurrency have value? The answer is in the question. We’re talking about the word value. And not monetary value. We mean is it useful and practical. For example, a cryptocurrency that helps facilitate cross-border transactions will likely be more valuable than something just exists for a very small and insignificant use case. That’s why crypto that’s accepted by merchants for payments are often valuable and reliable.
2. People’s Attitude
Why are cryptos going up? Market perception has a lot to do with it. Believe it or not, people’s perception and attitude about a specific cryptocurrency can determine crypto values. If investors have a positive attitude toward a cryptocurrency, the market will respond positively, and that could lead to a rise in price.
3. Competition
There’s a lot of crypto competition out there. Gone are the days when Bitcoin was the only game in town. Today, it seems like there’s a new cryptocurrency popping up every day. That’s because the barrier to entry for newcomers is low. But just because you can join the game, it doesn’t mean you’ll succeed. To see the price of crypto rise, a user network needs to exist. So why is crypto going up for some newcomers while some more established cryptos are trending down? Well, as users become more and more interested in a specific crypto, they divert their attention from more established competitors, ultimately leading to a drop in value.
4. Media Visibility
Who controls the value of cryptocurrency? In a way, the media. Hear us out. If the media isn’t talking about a cryptocurrency, it’s not getting noticed by investors. That’s why media presence and visibility is so important in determining the value of a Bitcoin and other cryptocurrencies. But not all media presence is created equal. Positive coverage is far better than negative coverage. That goes without saying, but there’s more to the story. Media coverage, even positive, can cause a big shift in perception. For example, a lot of positive media coverage followed by a negative story can jolt investors into action and spawn a lack of confidence in a crypto.
5. Legal Stuff
Three words. Regulation, regulation, regulation. When Bitcoin launched, it was touted as a deregulated currency. And why that remains true for a lot of crypto, there’s still a lot of confusion out there. The SEC argues that cryptocurrencies are like stocks and bonds. The CFTC, however, says they’re commodities, like gold. So while the SEC doesn’t regulate crypto (yet), they do regulate investments related to crypto. Until regulation gets sorted out, you may see the value of a Bitcoin continue to trend up. But cryptocurrency value in general could fall if the regulation hammer drops.
6. Liquidity
If you’re new to business terminology, let’s walk you through it. Liquidity has to do with how easily an asset can be sold or bought. High liquidity is a good thing. Investors like it because there’s price stability and there’s overall lower transaction costs. If a cryptocurrency has strong liquidity, there’s less volatile price swings in either direction and more overall confidence. With that level of trust comes more adoption of that specific crypto, which could lead to higher cryptocurrency value.
7. Exchange Presence
A cryptocurrency exchange is a business that facilitates the trade of crypto for other assets, including other digital currencies or traditional fiat money. If you’ve ever bought or sold Bitcoin or Ether on an exchange, you might assume that all crypto can be bought and sold this way. But not all big exchanges support all cryptocurrencies. Some cryptos (including new entrants) might be forced to trade on smaller exchanges, which may deter some investors from even taking a look. So if you’re looking at how to value cryptocurrency, consider how easily it can be traded.
The Conclution
If you’re just getting started with Bitcoin investing, the price might be out of your reach (unless you’ve got tens of thousands of dollars to buy one Bitcoin). But you can use Bitcoin’s history and the factors we’ve outlined above to help assess whether a new cryptocurrency that has caught your eye is worth betting on. Not every cryptocurrency will be the next Bitcoin, but by understanding how cryptocurrency gain value, you’ll be able to make smarter, more informed investment decisions.
Who sets the value of cryptocurrency? It would be nice if there was one man or governing body that sets the price of crypto. But that’s not the case. Just as no one person sets the price of traditional fiat currency like the USD or euro, no one person sets the value of cryptocurrency. As mentioned above, several factors go into determining how to value cryptocurrency. This ranges from investor interest to real-world application to exchange support.
Who is cryptocurrency controlled by? Believe it or not, the value of a Bitcoin and other crypto is controlled by you. Seriously, you. Excited? Well, the truth is it’s not just you. It’s other people who want to buy and sell that crypto. It’s determined by what the media is saying. It’s determined by how investors are feeling. It’s determined by so many factors that are out of your control.
Why is Bitcoin going up? Bitcoin was the world’s first cryptocurrency, and it remains the most commonly traded crypto to this day. Watching the cryptocurrency’s trajectory is both jaw-dropping and humbling. There are a number of reasons why crypto is going up, but investor optimism is definitely a driving force.
