Cryptocurrency is a digital currency created and held electronically. In a new and highly speculative market, the price of a cryptocurrency is determined by demand. Also, cryptocurrencies are more volatile than stocks. Demand can be influenced by many factors, including supply, scarcity, capital controls, government acceptance, etc.
Supply
The supply of a cryptocurrency is the number of coins in circulation. It’s important to remember that this includes all coins: those that have been mined, those that are traded on exchanges, and even those that have been lost or not recovered.
The total supply of Bitcoins is 21 million, but there will never be more than 20 million in circulation at any given time (since some people lose their private keys. The remaining 1 million Bitcoins are stored by Satoshi Nakamoto and cannot be spent unless he reveals his identity.
Demand
Demand is a function of the number of people who want to buy a cryptocurrency. The more people want it, the more demand there is and, therefore, the higher its value. Demand for a cryptocurrency can be high because:
Some other examples include Ethereum, which allows people and companies to build decentralised apps like smart contracts, Zcash, a privacy-focused cryptocurrency, and Litecoin, a popular alternative to Bitcoin.
Cryptocurrencies are often based on open source technologies, making them easy for anyone with basic computer knowledge to copy and modify. This has led some altcoins like Dogecoin or Pepe Cash over time to become “meme coins,” which may not have any practical purpose but are popular amongst certain groups online, making them less likely than others to be adopted by businesses or governments.
Capital controls
Capital controls are restrictions on the movement of capital. These can take different forms, such as limits on cash withdrawals and transfers abroad. They are often implemented by governments in response to a financial crisis when they want to prevent money from leaving the country and causing further damage.
You can also use capital controls for other purposes, such as preventing money laundering or enforcing environmental standards by preventing companies from sending profits overseas. In some cases, these capital restrictions may be beneficial because they limit certain negative behaviour (e.g., tax evasion). However, because cryptocurrencies allow people to send money across borders without going through traditional banks or other intermediaries, they provide an alternative means for circumventing capital controls in countries where they’re imposed.
Scarcity
If you look at the word ‘scarcity’ in a dictionary, it will be defined as an extremely limited supply of something. This means that there are very few of these items available for purchase. If you have a limited supply and high demand, then your product will be more valuable than if there were an infinite amount of it on the market and no one wanted any.
The same principle applies to cryptocurrencies; they are worth more when fewer of them are available compared to how many people want them. There may only be 21 million Bitcoins ever created, but that doesn’t mean there aren’t still people who want to buy them.
Government acceptance
Government acceptance of cryptocurrency is a significant factor in the value of cryptocurrency. Various factors: can drive the demand for cryptocurrencies.
Governments adopting bitcoin and other cryptocurrencies could increase demand for cryptocurrency, which would increase its price. For example, Japan recently made Bitcoin (BTC) a legal currency and approved 11 exchanges to operate within its borders. This announcement had a significant impact on the price of BTC.
The value of cryptocurrency is highly variable and depends on many variables. The value of cryptocurrency is not stable and can change quickly. The value of cryptocurrency is not tied to fiat currency but rather to other cryptocurrencies.
Conclusion
We hope this article has shown you why the value of cryptocurrency is so hard to predict and how different factors affect the price. Remember that even though we may not know precisely what will happen next with cryptocurrency prices, one thing is certain, we will all be watching closely as these trends unfold.
