If you’re asking how does cryptocurrency gain value? Or how do the prices of Cryptocurrency increase? This analysis can be helpful for you. Here we will try to figure out the major factors that are responsible for the price increase in a cryptocurrency.
After the rise of Bitcoin, Cryptocurrencies are becoming popular day by day. The cryptocurrency market is booming, and the value of cryptos is constantly changing. While these price swings of cryptocurrencies make exciting news stories, crypto investors are still not able to understand how the value of cryptocurrencies actually increases.
What is cryptocurrency?
Before diving into the factors that are responsible to increase the value of a cryptocurrency, we need to understand what is a cryptocurrency.
Cryptocurrencies are digital assets that can be used to purchase goods and services from merchants or trade on cryptocurrency exchanges. It has several important characteristics everyone should know:
- Cryptocurrency is not regulated by any government or Central Bank.
- Crypto assets exist only in digital reality (But they have also ATMs like fiat currencies).
- Cryptocurrencies have a public ledger of transactions that we call Blockchain.
How does cryptocurrency gain value?
There are several factors that are responsible for the price gain in a cryptocurrency:
1. Popularity
Popularity is a key factor that is behind the sudden price increase in a cryptocurrency. is Social media platforms are today one of the most powerful tools that work behind the popularity of cryptocurrencies. There are several social media platforms that are being used as cryptocurrency forums. Crypto investors use to discuss and decide the future of cryptocurrencies on these platforms.
Twitter and Reddit have emerged as popular platforms for cryptocurrency discussion. There are many celebrities that use to influence the value of cryptocurrencies directly through their tweets. For example, the price spike in Bitcoin and meme coins like Dogecoin has directly related to the tweets of Billionaires like Elon Musk and Jack Dorsey.
Dogecoin is the people’s crypto
— Elon Musk (@elonmusk) February 4, 2021
Elon Musk has tweeted many times in the support of his favorite cryptocurrency Dogecoin. Dogecoin has spiked many times due to the tweets of Elon Musk. Recently when Elon Musk decided to buy the social media platform Twitter, Dogecoin spiked 20%. The same is with Bitcoin which is supported by many Billionaires and celebrities. We can see the #Bitcoin hashtag in the bio of many celebs.
2. Limited Token Supply
Token supply is one of the key technical factors that are responsible for the value of a cryptocurrency. It has been seen that cryptos with a limited token supply can have more potential than cryptos with a high token supply. Bitcoin is the most popular cryptocurrency in the market but even with high demand Bitcoin has a limited token supply. According to CoinMarketCap, the maximum token supply of Bitcoin is restricted to 21 million BTC tokens.
The limited supply of tokens is also connected with the values behind the other cryptocurrencies like Ethereum and Solana. Some popular cryptocurrencies like Shiba Inu and eCash (XEC) are still struggling to touch the 1-cent cap because of their extremely high token supply. If such tokens will touch the 1-cent cap, they can surpass the market cap of Bitcoin.
3. Project value
The value of a cryptocurrency also depends on the project. For example, top cryptocurrencies like Bitcoin, Ethereum, and BNB have many use cases. Bitcoin and Ethereum both are used for millions of transactions. Ethereum and BNB are also being used to generate smart contracts. There are many cryptocurrencies that are running on the Ethereum blockchain.
Practical use cases of cryptocurrency projects make them more valuable. There are some more projects like Sandbox and Decentraland that are Metaverse-based gaming platforms. Such metaverse projects have also launched their own cryptocurrency that is popular among crypto traders due to the project value. As per some market experts, in the next few years, the crypto projects with real use cases will overtake the market.
4. Demand and Supply
The value of a cryptocurrency is directly related to the number of investors that are willing to accept and invest their money in the crypto project. The key factor behind the price increase in Bitcoin, Ethereum, or Dogecoin is the high acceptance rate of their investors. Bitcoin has given its initial investors a 25,000% return, all credit goes to the demand and supply.
There are many cryptocurrencies in the market like Litecoin that have a limited token supply or similar supply to Bitcoin and Ethereum but their growth is slow, that is because of the demand and supply mechanisms. Along with BTC & ETH, in many cases, we have noticed that demand and supply is a key factor that drives the value of a cryptocurrency.
5. Price of Bitcoin
It has been seen on many occasions that the value of cryptos has fallen because of the bearish performance of Bitcoin. According to some crypto experts, it’s Bitcoin that drives the whole crypto market. Once the value of Bitcoin decreases, all the cryptos lost their value. For example, in 2021, Bitcoin touched its all-time high (ATH) and it was the time when most of the cryptos touched their ATH level.
In 2022, when Bitcoin is showing a bearish performance and lost its value by more than 40%, the value of all cryptos is on the ground. Some crypto investors decide to invest in other cryptos on the basis of the performance of the Bitcoin. However, many crypto experts have a different opinion on this factor.
6. Performance of Tech stocks
Some crypto experts believe that the value of Bitcoin and other cryptocurrencies also depends on the performance of tech stocks. We have also noticed on many occasions when the performance of cryptocurrencies was directly related to the performance of tech stocks. In 2022 when the crypto market is showing a bearish performance tech stocks are also not going great.
Some big tech stocks like Facebook have lost their 35% value. It was the first time in recent years that Facebook CEO Mark Zuckerberg is not on the list of the top-10 richest. Netflix and Amazon stocks have lost their value by more than 15%. However, it’s a matter of research and analysis on how the performance of cryptocurrencies is related to the performance of tech stocks.
Final thoughts
How Does Cryptocurrency Gain Value?
We have seen the rise of Bitcoin, Ethereum, as well as meme coins like Dogecoin and Shiba Inu. There are some cryptocurrencies that have spiked more than 500,000% in a year. Some crypto investors use to think that the public sentiments are also responsible for the price increase in a cryptocurrency.
But when it comes to the price spike in cryptocurrencies, no one can define it accurately. Some important key factors are explained above that have been noticed by us. However, in reality, there is no certain single method that can define how does cryptocurrency gain value actually.
