Cryptocurrency

How does cryptocurrency gain value in 2022?

Cryptocurrencies are the latest ‘big thing’ in the digital world and are now recognized as part of the monetary system. In fact، enthusiasts have labeled it the ‘money revolution’.

In plain terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created through special computational techniques referred to as ‘mining’.

The acceptance of currencies، such as the US dollar, the British pound and the euro, as legal tender is because they are issued by a central bank. However، digital currencies, such as cryptocurrencies, do not depend on public trust and confidence in the issuer. As such, several factors determine its value.

Principles of free market economics (mainly supply and demand)

Supply and demand is a major determinant of the value of anything of value, including cryptocurrencies. This is because if more people are willing to buy a cryptocurrency, and others are willing to sell, the price of that particular cryptocurrency will increase and vice versa.

Mass adoption:

Mass adoption of any cryptocurrency could send its price to the moon. This is because many cryptocurrencies have their supply limited to a certain limit and, according to economic principles, an increase in demand without a corresponding increase in supply will lead to an increase in the price of that particular commodity.

Numerous cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing personal life issues as well as everyday decision-making cases, with the aim of making them necessary in everyday life.

Fiat Inflation:

If a fiat currency, such as the USD or GBP, inflates, its price rises and its purchasing power falls. This will then cause cryptocurrencies “let’s use Bitcoin as an example” to rise relative to fiat. The result is that you will be able to buy more of that fiat with each bitcoin. In fact, this situation has been one of the main reasons for the increase in the price of Bitcoin.

History of scams and cyber attacks:

Scams and hacks are also crucial factors affecting the value of cryptocurrencies, as they are known to cause wild fluctuations in valuations. In some cases، the team supporting a cryptocurrency can be fraudulent; they will pump up the price of the cryptocurrency to attract unsuspecting individuals، and when their hard earned money is invested, the price is cut by the fraudsters, who then disappear without a trace.

It is therefore imperative to be wary of cryptocurrency scams before investing your money.

Some other factors to consider that have an impact on the value of cryptocurrencies include:

  • The manner in which cryptocurrency is stored, as well as its utility, security, ease of purchase and cross-border acceptability.
  • The strength of the community that supports the cryptocurrency “this includes funding, innovation and loyalty of its members”.
  • Low risks associated with cryptocurrency as perceived by investors and users.
  • Feeling the news.
  • Market liquidity and cryptocurrency volatility.
  • Country regulations “this includes the ban on cryptocurrencies and ICOs in China and legal tender in Japan”.

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