In a world where everyone is asking whether cryptocurrencies will grow or stay as they are, we need to see what determines their value.
The answer is very simple – people.
The same thing as any other traded instrument or currency, what people are willing to pay for it.
It sounds trite, but it’s the truth.
The value itself is embedded in the faith of the community that the supply and demand will have gradual upward price pressure over time.
That faith is founded on the structure of the market place as specified by the rules that are embedded in the cryptocurrency application code, the historical performance of the marketplace, and the anticipated and actual utility of cryptocurrency for payments through currently available goods and services and through investments in new goods and services.
Now, what kinds of things might compel a person to be willing to value cryptocurrency highly?
A desire to hedge against inflation, its technological underpinnings, its decentralized nature, the privacy it offers, the security it offers, etc.
Different people will value these properties differently, and thus be willing to pay more or less for bitcoin. Most people that know about cryptocurrencies make the distinction that fiat currencies are coined and enforced by governments. Cryptocurrencies, however, are not enforced by anyone. This is why we distinguish between fiat (USD, EUR, etc) and BTC.
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