- Cryptocurrency values depend on factors like supply and demand, utility of the asset, aim and development, accessibility and exchange listings, governance, and marketing.
- The supply and demand of crypto assets determines their value, and their utility makes them valuable to holders.
- The aim, goal, and development of a project, along with accessibility and exchange listings, can also increase the value of a cryptocurrency.
- Governance allows stakeholders to have ruling or voting power in decision-making, while marketing creates social attention, which can increase a cryptocurrency's value.
Cryptocurrencies have been quite a hot topic in the past few years due to their volatile movements, immense marketing, and social attention that is being surged from all over the world. In case you didn't know, the world was introduced to crypto assets with BTC all the way back in 2009, and the overall market cap of crypto assets as of now stands at over $1.5T. But how did a coin named Bitcoin that initially started with a value of $0.0008 reach over $60,0000 in a decade? These are the types of gains that cannot be comprehended by a normal brain, but these types of examples are quite common in the blockchain industry.
Be it Ethereum, Dogecoin, Shiba Inu, or other countless crypto assets, they have gained enormous value over the past few years and have made millions of people wealthy. But the question here is, how does cryptocurrency gain value? What are the factors behind the unprecedented growth in the value of cryptocurrencies? Let’s find out!
Factors affecting the value of cryptocurrencies
One thing to keep in mind is that cryptocurrencies are usually decentralized and not backed by private firms, organizations, or governments, and that is why their value depends on the factors that are mentioned below. Make sure to go through them all thoroughly to understand how market movements work within the crypto industry.
Supply and demand
The first and probably most fundamental factor that defines not only the value of cryptocurrencies but pretty much everything in the world is supply and demand. Anything that is readily available in huge quantities will have a lower price. Of course, any products with high demand, as you may have seen of many popular cryptocurrencies, will fetch extremely high prices. But wait, there are cryptocurrencies like Shiba Inu and Dogecoin that are immensely popular, so why is their price so low? Well, in those cases, supply has the upper hand, outweighing demand, due to the massive quantity available. Shiba Inu, with almost 600T coins available, would of course, have a very low value compared to BTC, with only 21M coins in existence.
The factors of supply and demand also vary depending on the crypto project goals, aims, and the network they are based on. For instance, crypto projects based on the Ethereum network help push the price of ETH every time a transaction is processed or a block is mined. This scenario might differ for other cryptocurrencies if they have not created a proper ecosystem to sustain their project and gain attention.
The utility of the crypto asset
Would you buy something that has no use case? Although there are some people that do, when they jump onto the hype of a meme coin, most serious investors would not. This is where the utility of a crypto asset comes into play, making it valuable for their holders in various ways. The biggest example of utility in the crypto industry is Ethereum and the network it has offered to more than half the cryptocurrencies in existence to work and fulfil their transactions. Many cryptocurrencies would cease to exist without Ethereum, and that is a testament to how strong Ethereum's utility is. In the case of other crypto assets, they can offer utility to their users by making the coin beneficial and profitable within a specific system, platform, or chain. They can use that system to award users for burning, staking, voting, or even holding that particular asset, making its utility stronger. An example is KCS (KuCoin's token), which gives users 20% discount when paying trading fees on KuCoin exchange.
Aim, goal, and development
These might seem like three different things, but they all lie in one single category, and they cannot be achieved without one another. If there is a crypto project without a clear aim and goal, it will certainly have no positive value change and may even lead to a decrease in price. On the other hand, the projects that have certain milestones and aims to pursue, continue to work on their goals and keep developing to fulfil what they aimed for in the initial phases.
This does not only bring trust but provides crypto holders with a clear vision of what the project is about and how it can help build the community. If you opt for a project that keeps developing, enhancing, and changing as per the industry requirements, it is highly likely to increase its value compared to a coin that has no use-cause or goal.
Accessibility and exchange listings
There is no way for the majority of crypto investors to access a particular cryptocurrency until it is available for purchase on crypto exchanges. Sure, each project comes with its unique contract address, and you can put that on a DeFi exchange so it can be bought anywhere, but the complications included with this procedure are not ideal for casual crypto users and investors. This is why it is crucial for any cryptocurrency to be easily accessible and listed on several popular crypto exchanges for people to buy. This has a massive impact on the price of a coin and increases its value over a period of time.
Not only that, but when an exchange lists a crypto asset, it buys that particular asset in bulk to provide deep liquidity to the users and make their investing or trading experience better. This has the added effect of increasing the price of the coin.
The decentralization of cryptocurrencies raises some concerns regarding governance, the management of a crypto asset, and who will take the project further. Of course, the developers play a great role in the whole scenario of governance, but almost every new project allows the investors or stakers to have ruling or voting power to bring changes to the project.
Timely decisions with community governance can keep the crypto project alive where everyone is satisfied with the decisions without having an upper party to make biased decisions. This is why governance plays a vital role in increasing the value of a particular token.
Marketing and social presence
How do you expect people to know about your project if you have not opened up about it on the internet, social platforms, forums, and websites that most of the crypto community visits? The marketing and social presence of any crypto project allows the developers to spread the word about their goal and let people know what they are working on. If it is trustworthy, revolutionary, and beneficial, the project will definitely attract a load of attention and lead people to invest.
Some of the most extensive examples of success through the social presence in this era of blockchain are Shiba Inu and Dogecoin, which successfully lured tons of investors through their social campaigns. They revealed their milestones, talked about the rewards and the ecosystem, and finally convinced people to check out what they were working on.
There are over 10,000 cryptocurrencies that exist right now, and tons of projects release every other day. There are hundreds of meme coins, shitcoins, assets with no plans, and of course, coins with something better planned out for the future. But the thing is, the competition within all the types has been increasing quickly, and it has become quite challenging for new projects to start out.
Unless a project successfully creates a viable network and community, the value of that asset cannot go up and will remain the same.
Whenever you plan on investing in any cryptocurrency, make sure to check the factors mentioned above and see if your preferred crypto asset fulfils the criteria. These factors definitely play a critical role in increasing the value of crypto assets and should not be ignored when making financial decisions. It is better to spend a few hours on your research, finding the best possible coin to invest in, rather than lose your investment because it was a worthless coin.
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