Where do Cryptocurrencies Get Their Value?

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Becoming a good cryptocurrency investor is a tough challenge. First of all, this industry is relatively new. Because of that, you can hear different opinions about it. Some people are passionate about digital currencies. They believe it will completely replace flat money soon. On the contrary, some people simply do not want to accept it. They are convinced that Bitcoin and other altcoins are nothing more than a scam.

You must respect both ways of thinking. However, your main priority should be to get familiar with this subject. Knowledge improvement is the key to success in every field. If you are a complete newbie, you should start by making small steps.

The first thing you should analyze is different types of cryptocurrencies. As you probably know, Bitcoin is the most popular one. However, some less popular ones can be interesting to you as well. Anyway, the next thing would be to understand where do cryptocurrencies get their value. This is a crucial thing that will allow you to make a better income. By understanding how the change of value functions, you will have more chances to predict certain things.

Well, enough talking; let’s find out together how digital currencies get the value.

1. Rising Demand

Source: bloombergquint

You do not need to be an expert to understand why rising demand influences value. Let’s imagine that the company started to sell the current item. The item usually won’t cost that much in the beginning. However, there is a chance that the company will improve brand awareness and advertise properly. Despite that, if the quality of the item is good, people will demand it more. The company owners will sooner or later raise the price of their products. When people massively demand it, they won’t regret spending a bit more money.

Things are not different when we talk about cryptocurrencies. You have probably heard that Bitcoin was relatively cheap in the beginning. Some people became millionaires because they invested in time. The good thing is that they didn’t spend a lot of money at all. Logically, the demand for BTC was not as big as now.

Together with huge online exchanges, the usability of cryptocurrencies also improved. People now have the chance to use digital currencies in their everyday life. The number of companies that are supporting cryptocurrency-based payments is growing as well. Logically, we have this scenario because many governments legalized the usage of digital currencies.

Over time, cryptocurrencies experienced popularity growth (and they still are experiencing). Because of that, their value is constantly going up and down.

2. Fiat Currency Inflation

Source: RealUnit Schweiz AG

Traditional money might seem more safe solution at first glance. However, they also have their ups and downs. Well, their value-changing directly influences the value of digital currencies. Each time when their value goes down, the price of BTC and other altcoins grows. You might understand why this is happening. This means that you can get more of the currency with your digital coins.

ECB and FED are printing more and more money daily. In this way, they want to keep interest rates low. Because of that, the price-change because of this factor is often visible today.

3. Production Costs

Source: pennilessparenting

Let’s once again use the example of well-known industries. Let’s imagine that you sell current food that contains different ingredients. What is going to happen if one of those ingredients becomes more expensive? Will you keep the same price of your product? If you want to cover all the costs and earn some money, you will have to raise the price of your product.

Something like this happens to digital currencies as well but differently. Opportunity costs and direct costs have a strong influence on price. A good example of that would be the production of Bitcoin. Miners need to invest a lot of money to cover their electricity costs. Logically, they have to use specialized pieces of hardware to accomplish their tasks. Despite that, they also need to invest a lot in cooling systems for that type of hardware. All these costs are raising the value of all cryptos.

4. Node Count

Source: internewscast

At first glance, this factor might seem unclear. Because of that, let us describe it a bit later. This indicator shows how many active wallets exist on the current network. You might believe that getting this piece of data is tough. However, you can easily find it on the internet. In some cases, you can find it on the homepage of the currency you invest in.

There is one tip that we would like to give you here. As we said, being a successful investor requires hard work, dedication, and knowledge. Well, investors use different ways to analyze the price of current currency. One way is to check the total market capitalization and node count. Use those two factors and compare them with other cryptocurrencies. This will tell you if the currency you want to invest in has a fair price or not.

5. Rumors

Source: Droidmen

Believe it or not, this can also influence the value of digital currencies. You need to understand that the crypto world is not simple at all. However, the more important thing is to understand that this world is not gentle at all. Owners of different digital currencies use different tricks to harm the reputation of their competitors. In this way, they want to reduce the value of other currencies and attract new investors. You need to be careful when receiving this type of information. It doesn’t necessarily mean that they are all correct. They can sometimes give you the wrong direction that will only take your money.

6. Global Problems

Source: currency

Coronavirus crisis is good proof of how things can change in a second. Indeed, pandemic negatively influenced all fields of business. This also counts when we talk about the crypto world. Some people quickly sold their money because they were afraid of what could happen. Because of that, the price of all digital currencies is currently affordable.

Bonus Tip: How to Become Rich?

As you can see, becoming successful in this field depends on many factors. Because of that, you must work on your skill improvement. Despite that, it would also be good to find any type of assistance. Some software solutions can make things a lot easier for you. They can help you understand the trading process easier and earn some profit. If this seems like a good option, we recommend you visit bitcoin-fortress.com. Find the help you need there and explore the entire cryptocurrency world.

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