Cryptocurrency is becoming an increasingly popular form of payment, with Bitcoin being the most well-known.
One question that many people have about Crypto coins – Bitcoin specifically, how does it go up in value?
There are a few different factors that can contribute to how much cryptocurrency goes up in value.
And how valuable they are.
In this blog post, we will look at what makes cryptocurrency increase or decrease in value and how you might be able to make your own investing and trading decisions.
The value of cryptocurrency is determined based on how much people want it, how rare it is, how easy it is to mine (or produce), how many sellers there are for the currency, and how willing buyers are to purchase it.
Let’s dig in deeper.
6 Conditions That Determines the Value of Cryptocurrency
Here are possible reasons why cryptocurrencies go up and down in value:
1. Market Demand
Cryptocurrency value increases when demand for the currency goes up.
One of the most important reasons why cryptocurrency values change is because of how much people want it.
For example:
When supply decreases (like with Bitcoin), the price will increase.
If a lot of people want to buy some Bitcoin, then that drives up demand and forces sellers to charge more for their Bitcoins (thus increasing its value).
Conversely, if few people are interested in buying anything with Bitcoin or other cryptocurrencies, then supply goes up while prices go down.
That’s how market demand has an effect on how valuable crypto coins can be at any given moment in time.
Supply and Demand is a big factor in how valuable cryptocurrency can be.
A classic example of how supply and demand affect the value of a currency is what happens when Bitcoin goes up in popularity?
The price starts to rise as people want it more but there’s not enough supply on the market to meet that heavy demand. That increased desire for Bitcoins drives up its price.
The opposite is true when Bitcoin’s popularity starts to decline.
With fewer people interested in buying it, the price goes down and supply becomes greater as sellers need to sell their Bitcoins for more than they paid for them just to break even.
2. Announcement and Upcoming Events
Demand can go up because of an announcement that a company is going to accept crypto payments, or because people are speculating on its future value.
For example:
An example of how a company accepting crypto payments would affect demand:
If Company a accepts Bitcoin as payment, then later announces that they will stop accepting Bitcoin for purchases due to the volatility in the market, people who were holding Bitcoins may sell them off.
This happened not too long ago when Elon Musk started accepting BItcoin in his company – we all saw how Bitcoin projected afterward.
A similar thing happened when he started pushing DOGE coin.
Months on, he later tweeted that Tesla would no longer accept bitcoin as payment due to environmental concerns about its heavy energy use. This caused a significant drop in the value of Bitcoin.
Another example:
Is when a coin is to get listed (or newly listed) on a popular cryptocurrency exchange like Binance or Coinbase.
Getting a coin or a token listed on an exchange like Binance is a big deal because it gives the coin or token instant credibility. Hence drives its value up.
Monitor any new coin or token listed on popular exchanges, you’ll notice a huge surge in its value.
3. Number Coins and Tokens in Circulation
The number of coins in circulation is how much of a coin is available to the public.
This means that if there are very few coins in circulation, then it would take less on average to get one.
A low supply increases its value because not many people can buy them and each individual coin will be worth more as a result.
A high number of coins in circulation could mean that the price per unit might decrease over time since there are plenty of people who have access to buying some for themselves or trading with others without needing any money at all (since they don’t need to purchase an equivalent amount).
This means if a coin or token is limited in circulation, it will increase in value.
For example:
If there are only 100 of a coin that cost $0.01 each but the company has said they’ll never make more than 500,000 then people may be willing to buy them at $0.02 because future supply is low and demand is high for this specific coin or token since not many other companies offer anything similar (and those who do have a limited number).
The price per unit also goes up as more coins/tokens come into circulation over time which means that you can’t always guess how valuable something might get in the future by looking at how much it costs today.
4. Mining Becomes Difficult or Expensive
Supply can decrease if mining becomes more difficult or expensive, which could happen if there’s too much competition and not enough new coins being created.
When it becomes too difficult or expensive to mine, miners will stop mining, and demand for the coin may decrease.
Miners are how new coins are created so if this happens too much, supply decreases, and price increases.
Supply also goes down when people lose their private keys (either by forgetting them or losing a hard drive with data) which means that they can’t access their digital assets anymore even though it’s still on the blockchain network somewhere.
In these cases as well prices tend to go up because there is less of an opportunity cost in purchasing what someone else owns.
5. Mass Adoption by Community
Another thing I think that causes cryptocurrency value to increase is how many people want it.
The more people who use bitcoin to buy goods and services or trade with one another, the greater its value becomes because there will be an increased demand for bitcoins from others.
The more people who are invested and know about how cryptocurrency work, the higher demand will be for them.
The thing that makes me think this is because there’s a lot of new cryptocurrencies every year with newer technology than their predecessors (bitcoin).
With all these new investments in cryptocurrencies, they’ll need time to get used to, so as the number of investors grows over time, eventually, mass adoption by the community will cause increased interest and therefore make crypto values go up when someone wants one but can’t buy it yet because no sellers are available due to high demand or low supply.
6. Inflation of Fiat Currencies
This is when the government of a country prints more money or increases how much they’re devaluing their currency.
Bitcoins are not affected by this because people know that bitcoins will always have value and can be traded for other things, so their worth doesn’t change even if the economy, in general, is unstable.
So what does this mean for bitcoin and other cryptos?
Well, what this means is that not only do people see how cryptos like bitcoin and other altcoins are not inflating, but how they can have a stable value in fiat currencies.
This means that when people want to invest their money in one thing for the future instead of investing it into something whose value could go anywhere-they might choose cryptocurrency as an alternative option.
Inflation is just one factor that affects currency values; by contrast, cryptocurrencies such as Bitcoin actually increase over time with each person who invests and uses them.
The number of investors grows over time, eventually leading to mass adoption by the community.
Which will cause increased interest thus making crypto values rise when someone wants one but cannot buy it due to high demand or low supply.
In this way, Cryptos are not affected by inflation and the value of one Bitcoin will always be worth more than how much it is valued in fiat currencies.
Final Thoughts
At the end of the day, how does cryptocurrency value increase is a difficult question to answer.
Many factors make up the crypto market and it’s hard to pinpoint one specific cause for an increase in price.
However, the factors mentioned above all play an important role when discussing why certain cryptocurrencies go up in value while others decrease or fluctuate wildly crazily overnight.
You should first look at these factors and how they relate to the crypto of your choice.
Then, do some research on whether or not it has a solid backing behind it with an active development team as well as promising use cases that could lead to further adoption in the future.
Investing is risky no matter what asset class you choose so make sure to take all this information into account before diving headfirst into buying any currencies!
Finally…
Let’s recap on factors that make cryptocurrency gains value and loses value:
- Market demand of a coin
- Announcements and upcoming events of a coin
- Number of coins and tokens in circulation
- Mining becomes difficult or expensive
- Mass adoption by the community and commonly it is used
- Inflation of fiat money
