What Influences The Value Of Cryptocurrencies?


With over 4,000+ types of cryptocurrencies in the market, digital coins are ruling the world of finance! They have gained a lot of popularity over the years, mainly because of their unregulated nature and the rise of trusted crypto trading platforms like Coingate.

But why are the value of cryptocurrencies so volatile? Well, there are many reasons behind the volatile nature of cryptocurrencies. Besides the usual supply-demand principles and community involvement, several other factors influence the value of cryptocurrencies. And with this article today, we will decrypt the factors that play a part in determining the value of cryptocurrencies.

What Makes Cryptocurrencies Different?

Before we get into the details of the factors influencing the value of cryptocurrencies, we first need to understand how these currencies are different from conventional fiat currencies. The most prevalent distinction between both currencies is that fiat currencies are backed by the governments that can influence the value of these currencies. Most countries in the world use fiat currencies created and regulated by the country’s central banks.

On the contrary, cryptocurrencies are not regulated or backed by any centralized authority; they are mined!

Mining is the process where people work on highly advanced computers to solve complex mathematical problems and gather these virtual currencies.

Certain countries such as Nigeria, Vietnam, the Philippines, Turkey, and more accept cryptocurrencies as legal tenders. The most distinctive feature of cryptocurrencies is that the supply of these currencies is generally predetermined, making it significantly less likely to devalue such currencies through inflation.

Apart from that, both crypto and fiat currencies have more or less similar characteristics as they can both be used as a medium of exchange to purchase and product or service. Additionally, both currencies have a relative store of value.

Now that we have a basic understanding of the distinction between the two currencies, let us take a deeper look into the factors influencing the value of cryptocurrencies.

Factors Influencing Value Of Cryptocurrencies

Supply And Demand Of Cryptocurrencies

As with almost anything else, even their supply and demand can hugely influence the value of cryptocurrencies. Even though the supply of specific cryptocurrencies like Bitcoin is always known, there is a predetermined cap on the maximum supply of Bitcoins.

However, there are also others such as Ether that have no fixed cap on supply. Furthermore, specific cryptocurrencies also leverage different mechanisms to prevent the circulating supply from growing too large, which could devalue the cryptocurrency.

Therefore, even in cryptocurrencies, the demand for a currency increases when there is awareness about it in the market. Thus, increasing the price of the cryptocurrency and vice versa.

Nod Count Of Cryptocurrency

The nod count of a cryptocurrency is used to determine the number of active wallets existing in the network. This is one of the accurate indicators of the value of cryptocurrencies. This enables investors to look for the nod count and total market cap of cryptocurrencies and compare the indicators with other cryptocurrencies.

This way, one can determine if they are being fairly charged for their cryptocurrencies. Furthermore, the nod count is also a powerful indicator used to assess the strength of a community of cryptocurrency, which translates to a principle where the more the number of nodes is, the stronger the crypto community is.

Cryptocurrency Exchanges

Most mainstream cryptocurrencies like ETH or Bitcoins can be found in almost every cryptocurrency exchange platform. However, most small cryptocurrencies are not available on every exchange. This limits access to these cryptocurrencies for many investors.

Certain cryptocurrency wallets allow users to swap their cryptocurrencies across different exchange platforms. However, a predetermined fee is charged for that service, which increases the cost of investing in these cryptocurrencies. In simple terms, when a cryptocurrency is listed in many exchanges, this increases the willingness of investors to purchase that currency. This further helps increase the demand and the price of the cryptocurrency simultaneously.

Cost Of Producing Cryptocurrencies

Another primary factor that has a heavy influence on the value of cryptocurrencies is the direct and opportunity cost incurred to produce the currency. We are all aware that the cost of mining Bitcoins is far higher as compared to other cryptocurrencies.

One has to be equipped with highly advanced computer systems to process the large amount of data and energy required to mine Bitcoins. That being said, one might think that the power and resources spent to mine Bitcoins are a waste, but in reality, it is the only way to ensure the safety of the investors. This safety aspect further contributes to the increasing price of Bitcoins as this prevents governments from shutting down Bitcoin Blockchain easily.

Concluding Thoughts

Cryptocurrencies have always been regarded as highly volatile as the value of these currencies goes through exceptional fluctuations. However, that does not mean that people will stop investing in cryptocurrencies anytime soon. This is mainly because now many influential personalities such as Elon Musk show great interest in Blockchain technology.

Lastly, many governments are also minimizing the regulations associated with the trading of cryptocurrencies. This clearly indicates that cryptocurrencies are in for the long haul.

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