Where does the value of virtual currencies come from?

wartosc bitcoina

Have you ever heard a similar statement; “Bitcoin? It’s virtual! This isn’t real son, don’t even try to buy it!” People are often skeptical about something that aspires to be a currency and yet cannot be seen or touched. Cryptocurrencies still have a long way to go to become widely used and acceptable, i.e. the moment where we will not wonder how much 1 bitcoin is worth, such as 1 USD is just USD 1 for us. Before this happens, and cryptocurrencies will completely and forever replace traditional currencies, they mainly have speculative value.

Speculative value

This slogan often appears in discussions about the valuation of cryptocurrency projects. It is certainly a market where speculation plays a very important role, as evidenced by sometimes huge fluctuations in the price of individual coins. Speculative value, however, is not only the domain of virtual currencies. In virtually every market, such as forex, bullion or public companies, people speculate on the price of a given asset, trying to outsmart the market. In fact, even by listing a passat, we are speculating to some extent about its proper market value. We will get for it, exactly as much as someone will be able to pay, exactly the same with the sale of cryptocurrencies. In the latter case, however, it is harder to determine precisely whether the price at which we have made the sale is favorable and will not increase by e.g. 50% tomorrow. Everything is done on the principles of a free market, demand and supply.

What influences the price of the cryptocurrency?

Number of users – each cryptocurrency project has its own community. The rule is simple, the larger the community, the greater the demand for coins, while the increased demand has a positive effect on the price. A good example is Dogecoin, a cryptocurrency created in honor of the “doge” of the world famous meme hero. From the technological point of view, it does not present anything unusual, but the large number of users still ranks this project very high in the rankings of total market capitalization.

Real use cases – Currently, perhaps the most important use of cryptocurrencies is simply to treat them as an investment asset. Although there are more and more places where you can pay with them for real products and services, we still cannot speak of their universal acceptance. Bitcoin as the most popular cryptocurrency is the undisputed leader in terms of the number of places where you can pay with it. Undoubtedly, this popularity also translates into its valuation.

Moods in the markets – the valuation of individual coins largely depends on whether we are dealing with a bullish or bear market at the moment. The cryptocurrency market is young and relatively shallow, which, combined with the huge technological potential, leads to the formation of so-called speculative bubbles. When the price starts to rise, the desire to make a profit attracts more and more new investors with new capital, causing further price increases. The emotions caused by such violent movements cause successive spikes and a general euphoria that leads to new peaks and a final revaluation of assets. Unfortunately, such increases are always followed by equally sudden drops, so remember not to buy in euphoria under the influence of emotions, because then you bear the greatest risk.

Potential for development and further adoption – this aspect consists of several factors that allow investors to positively speculate about the increases in the value of a given coin. An efficient team leading the project is extremely important here, i.e. developers who develop the source code, at the same time creating infrastructure for a given coin. A thriving team also establishes partnerships with other entities from the blockchain industry, as well as from outside it, thus outlining the direction of the project’s development and the way to reach new recipients. Usually, considerable financial resources are needed for this, if we plan to invest in a given cryptocurrency in the long term, it is worth checking if the team has secured financing for the next years of development.

To sum up, the value of the cryptocurrency is exactly how the market evaluates it, and it is valued, among others, on the basis of the above criteria, so it is sometimes worth getting interested in a project a bit more before putting your own money into it “because it is just growing”.

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