A lot of people are discussing cryptocurrencies. But their worth is still somewhat obscure to those of us on the outside.
Estimating the value of cryptocurrency
While it’s simple to confuse cryptocurrencies with bitcoin, there are really more of these types of money in use globally than there are fiat (government-issued) currencies. The number of cryptocurrencies is certain to keep increasing, in large part because it’s so simple to create a new currency, which is really just computer code produced via open-source software intended for online value exchange.
A coin’s value is greatly influenced by how it was created and for what purpose. Despite the fact that there are hundreds of currencies, the top 20 are thought to account for almost 99 percent of the market by volume, according to the cryptocurrency website CoinDesk.
Similar to traditional currencies, supply and demand play a significant role in determining the price of cryptocurrencies. But the cost of manufacture also affects it. According to Edward Cooper, head of cryptocurrency at Revolut, “Look at the use case of a coin.” He emphasizes that the most crucial aspect of a cryptocurrency’s value is its usefulness. How much protocol update technical engineering is being done? What level of expertise was the founding team?
The usefulness for bitcoin is addressing the issue of wealth storage, while ethereum, the second-largest cryptocurrency in the world, may be used as the basis for applications. In contrast, dogecoin, which was created as a joke in under two hours, had a roughly 20% increase in value when Musk tweeted, “One word: Doge.”
External factors that influence the value of cryptocurrencies
A cryptocurrency’s value is also affected by outside influences, such as the statements or tweets made by well-known people like Musk. The billionaire increased the price of cumrocket, a substitute currency for adult producers, by over 400 percent in June 2021. However, he also prompted a more than 7% drop in bitcoin’s price when he said he was “breaking up” with the digital currency.
As the CEO of cryptocurrency company Valour and a former executive at HSBC, Diana Biggs observes that “cryptocurrencies are still in their infancy” and that market valuations often tend to be modest. This increases their erratic behavior and leaves them open to outside influences. Cooper observes that despite this, “individuals will find it harder to impact the market the more large firms spend.”
That investment is now taking place. Ten years ago, bitcoin was regarded as a “dark web” currency. Now, the millions of American users of PayPal wallets can use bitcoin just like cash. Additionally, Morgan Stanley, the first significant US bank, has started providing access to bitcoin money to customers worldwide. The establishment’s buy-in is expanding quickly.
Biggs also points to increased government transparency about bitcoin use as a key factor in the development of cryptocurrencies and the ensuing more stable value. The value of the currency increased by 6% this month as a result of El Salvador’s decision to become the first nation to accept bitcoin as legal cash.
But it works both ways. Bitcoin’s price fell by around 20% in May after Chinese officials nationwide banned cryptocurrency services. Saying Musk is the cause of the current decline in the price of bitcoin, according to Yang Li, chief growth officer of cryptocurrency account provider Ziglu, “probably gives him too much credit.” He undoubtedly contributes, but you also have the crackdown on bitcoin mining in China or the possibility of additional taxes on cryptocurrency revenues in the US.
Li is correct. Regulator actions have complicated several of Musk’s claims. For instance, a week-long decrease in bitcoin’s value after Tesla’s announcement that it would no longer accept bitcoin transactions for its electric vehicles was accelerated by the Chinese ban. Musk may seem to be a key player in the crypto sector, but he is not alone.