Factors that Determine the Value of a Cryptocurrency
“The value of a cryptocurrency is what makes it popular among the investors, but to identify how this value is achieved by a cryptocurrency we must dive deep into the factors responsible for generating this value. Value can be measured and it can also be perceived. There are factors that help in measuring the value and others that help in perceiving the value”.
Cryptocurrency Value
The value of a cryptocurrency depicts its worth in the crypto industry and determining this value requires proper analysis of multiple factors on which this value is based. The value can be in terms of price or perceived in terms of utility. As the market is determined by price and perception, we will discuss factors that determine the price and perception regarding the cryptocurrencies here to generate the value.
The Value Determining Factors
The Utility of the Coin
The utility of the coin is one of the major factors that determine its value. The coin must be such that it has high utility in its blockchain environment. For Example, Ether (ETH) is the native coin of Ethereum blockchain and nothing on the Ethereum blockchain can be achieved without the use of Ether. With its high utility in the large ecosystem, its value is ever increasing.
The Scarcity
Having a limited supply of a cryptocurrency would ensure that it has a high demand and thus a high value. Bitcoin is the biggest example of a cryptocurrency following this principle. Bitcoin’s limited supply of 21 Million coins makes it the most valuable cryptocurrency. The limited supply also makes Bitcoin a hedge against inflation and thus an increased perceived value in the minds of the investors.
Perceived Value
This is an important factor that determines the value of a cryptocurrency. The value of a cryptocurrency project will be perceived as a high value if the project is developing innovative products and services. This will ensure that more and more investors start believing the currency and thus money gets poured in and thus the value gets increasing. Cardano is a project that is perceived to be one of the most valuable as every module on Cardano is built after peer reviewed research.
Market Capitalization
The market capitalization is a major factor and is being used widely in combination with the supply of the cryptocurrency to determine its price. If a Market Cap of a cryptocurrency is $100,000 and the total supply is 10,000, each coin will be priced at $10 by the formula of Market Cap/Total Supply. It is one of the major factors that is being used by even the most novice investors to identify the value of a cryptocurrency.
Mass Adoption
A good cryptocurrency project with the future will be adopted by masses including the retail and institutional investors. The more the mass adoption, the more investment a project will attract thus increasing the value of the currency in the process. Reason behind the current price rise of Bitcoin and Ethereum is due to the adoption by masses in 2021.
Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.
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