What does the value of cryptocurrency depend on?
It is no secret that cryptocurrency has been taking over the news. Every single day, the prices of cryptocurrency go up and down. Depending on the market condition, just like any investment, cryptocurrency prices also go up and down all the time, nearly every day. It is a fascinating and mysterious subject. More details click at this link: https://bit-indexai.com/
Cryptocurrency is a digital currency form that operates on blockchain technology which encrypts all transactions. It is not governed by any bank or central authority. A block gets added each time a transaction occurs. However, it is confusing for many to understand how to enter the crypto trading world. If you are one of these people, getting an application such as Bitcoin Prime may be a good idea to get great support during the whole process.
Bitcoin was introduced in 2009. Today, it is priced at 19,198.40 USD. However, yesterday, it was a little more than that. What changed? What caused its value to go down, and what caused it to go up?
Factors that affect cryptocurrency’s value
Before we begin, it is important to understand that just like any other currency or investment, its value depends on the demand, its use and the consumers themselves. If the demand is high, its value will also be high. It’s as basic as that.
However, some external factors make a difference in its value. Here we have enlisted a few of them:
Costs of production
The costs involved in the production and the opportunity cost all contribute to the value of this currency. It is a widely known fact that Bitcoin production is an extremely expensive process with lots of hardware costs involved. The costs incurred in the energy involved are also astronomically high. Miners use energy to mine new tokens and add new blocks to the transaction chain. Since they are given returns based on their work, if the price of mining or production goes up, so does the value of cryptocurrency. Even though it may appear a tad bit wasteful, this is the only way to make sure that the users of cryptocurrency remain safe.
Node count
The node count refers to the number of active wallets in the network at that moment. The node count determines how strong a certain community is. Therefore, if the node count is high, then the community is strong; on the contrary, if it is low, then the community is weak. An extremely high node count may also indicate the decentralization of the network and strength of the network. To determine the fairness of the price of a particular currency, check its node count. This helps determine if the cryptocurrency in question fairly priced or overbought.
Government regulations
It is no secret that governments across the globe are not quite fond of the decentralized nature of cryptocurrency and the fact that any authority does not rule over it. Thus, as the popularity of digital currency increases, so do the chances of some rules and regulations being imposed on it. One way this has been done is through the introduction of taxation in these transactions. As the consumer market of cryptocurrencies will continue expanding significantly in the future, there more chances of severe rules and regulations being imposed on it.
Scarcity
It is a basic economic principle that if a resource is scarce in quantity, its value will go up, and if an abundance of it is available, its value will not be as high. The same is the case with cryptocurrencies. If there is a limited supply of cryptocurrencies, their value will increase, and on the other hand, if there is an extensive supply of cryptos available, their value will go down. For instance, it is no secret that Bitcoins are only available in a limited supply in the world. There are only 21 million of these coins available in the world. Therefore, their value is increasing every day.
Conclusion
In this article, we have talked about the value of cryptocurrency and the factors affecting its value. Several more factors go into the valuation of cryptocurrency. We hope that this article can provide you with a reliable guide to comprehending the variables in this equation.
