Cryptocurrency is one of the most fascinating enigmas of the modern era. It’s
something that so many people buy into without understanding the deep roots of it
all. The biggest question that’s been weighing on the minds of many is what exactly it
is that determines the value of crypto. There are obvious factors, such as how many
people have X amount of dollars invested at any given cryptocurrency at a particular
point in time, but given the volatile and unpredictable nature of it, there has to be
some other factors not taken into consideration.
“Supply and demand” is one of the most basic concepts of economics. It all comes
down to how much of a product is available in relation how many people want that
product. The way that supply and demand works within cryptocurrency can be a bit
tricky however. It isn’t as straightforward as a simple calculation. It all comes down to
how much people are willing to pay/sell for. Since cryptocurrency hasn’t been around
for very long it hasn’t had enough time to balance out its supply and demand. This is
one of the biggest reasons for its volatility.
A lot of cryptocurrencies have this thing called ‘perceived value.’ Diamonds are
intrinsically worthless, but it’s their purpose that gives them value. People have
managed to convince everyone that these rocks are special and pretty. This
manipulation is a large part of what makes diamonds so expensive. It’s the value that
society has perceived the diamonds to have. You can think of cryptocurrency the same
way. Since it’s protected by the blockchain, it’s considered to be a more private form
of currency. Privacy is valuable because it prevents things like price manipulation,
financial surveillance, and discrimination.
Social media is a very powerful thing. Given that it’s one the best communication
channels out there today, it seems natural that a lot of what you see and hear on the
internet plays a big part in how cryptocurrencies evolve. Even early Bitcoin
transactions were talked about through online forums, and this was at a time when
Bitcoin was only around $0.05. Over a decade later Bitcoin is sitting at ~$16,530.20.
Now obviously there have been plenty of highs and lows in between, but it’s also
apparent that very few people ever expected it to take off to this extent.
There are many global powers that have had a huge impact on the development of
certain cryptocurrencies. In 2021, China banned all cryptocurrencies which put a huge
dent in the entire industry. Millions of people had no choice but to sell, which
significantly lowered the value for most cryptocurrencies. There are many other
entities that believe that crypto poses a threat to the economy, which provides more
incentive to be wary of it. The electricity usage that comes with crypto mining also
plays a part in global impact.
How can you take these things and use them to predict where the price of a given
cryptocurrency will end up? There’s a very simple answer to this question: You can’t.
Unfortunately, it’s not that simple. There are far too many outside factors beyond our
control for us to determine whether the line will go up or down. Whether or not this all
sounds like it’s worth investing in is entirely up to you. There is only a small fraction of
investors who win big when it comes to crypto. A much greater number of investors
falter due to unwise investment decisions. It is simply the nature of cryptocurrency at
this point in time.
