Generally, anything gets its value when people agree that it is valuable. It is like how a piece of paper, a dollar bill, got its value. The actual principle applies in crypto as well. Since cryptos are generally decentralized, they gain their value from the following factors.
- Supply and demand
Like any other asset, the price of a crypto is driven by market forces. When demand surpasses supply, value tends to rise, and vice versa.
- Cost of production
For mineable cryptos like Bitcoin, the cost of mining plays a role. As the cost of mining increases, it also means that the value of the crypto increases. Miners will not mine if the price of the currency they are mining is not high enough to cover their costs.
- Availability of exchanges
When a crypto is listed on multiple exchanges, it means more people are interested in buying it, which can impact its price.
- Competition
Cryptocurrency values, among the thousands of cryptos in existence, with innovations day by day, can influence an asset's value.
- Governance
The governance structure and decision-making processes within a crypto community impact its perceived reliability and future development.
- Regulations
Government regulations and legal frameworks can both positively and negatively impact the value of cryptos.
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