So many people interested in the crypto industry don’t know the determinant of the value of cryptos. Do you want to know? Continue reading.
Apart from people who dislike cryptocurrencies and don’t see them as having any value since it is not a physical asset, there are crypto enthusiasts who don’t know how price is determined.
As you already know, the price and value of cryptocurrencies differ; Bitcoin’s price and total value differ from Ethereum’s.
Data provided by Coin Price Trackers show a significant difference in the price of even closely related cryptocurrencies.
This makes you curious about what determines the price of each of the cryptocurrencies in existence; continue reading as we explore the major factors involved.
How Cryptocurrency Works
One needs to know how cryptocurrencies operate to learn the factors that determine the value of such digital assets.
Cryptocurrencies use a digital public ledger known as the blockchain to guarantee their existence and perform their functions.
Your cryptocurrencies are generated through a process known as mining, which is done by using a computer to solve some complex math problems, creating coins in return.
These coins are stored in a crypto wallet that uses private and public keys to ensure that you can transfer your crypto to another wallet address on the blockchain.
The public key can be shared with a third party and serves the same function as a bank account number, and a third party should not see your private key details.
Despite the perks that come with this “new money,” it still has a long way to go in adoption in different countries worldwide.
Crypto Price Vs. Fiat Price
Fiat has always compared to cryptocurrencies, including how the price and total value of each are determined.
Fiat is simply physical money, for example, the US dollar and the euro, while crypto can’t be seen and operates on blockchain technology.
In terms of price determinants, fiat is backed and controlled by a central body known as central banks and governments. This means that the creation of fiat, its declaration as a legal tender, is only made possible by the apex government or bank of a country.
The total supply of fiat is simply unlimited, central banks of a country can issue as much money as possible to the public; this is why the price and value can easily be affected during inflation.
Since the central governments and banks control the fiat currency system, they also indirectly influence the inflation rate in the country.
This is far from how the price of cryptocurrencies is and the bodies that control it; the crypto industry is decentralized, and nobody or organization controls it.
So unlike fiat, whose price and value are influenced by inflation, cryptocurrency can’t be affected because the majority of cryptos come with a limited supply.
Factors That Determine The Price Of a Cryptocurrency
Supply And Demand
One of the factors that play a significant role in determining if a cryptocurrency remains relevant, the price, and the total value is the supply and demand.
This is just like any other asset with value; the more people demand a product, currency, or asset, its value increases.
The more a cryptocurrency gains more popularity both on the individual and the organizational side, the price of such crypto is more …….
Source: https://www.bitrates.com/news/p/what-determines-the-price-of-a-cryptocurrency-coin