Where exactly does cryptocurrency get its value? At the time of this writing, why is Bitcoin valued $47, 955.49 and Ethereum valued at $3,775.45? News about the highs, lows, and volatility of crypto populate our newsfeed daily. Unlike investing in traditional currencies, cryptocurrency is not issued by a central bank or backed by a government. Therefore inflation, monetary policy and economic growth measurements that normally affect and influence the value of currency do not apply to cryptocurrency.
Since cryptocurrencies are decentralized, their value is determined by other sources such as:
- Scarcity
- Utility
- Scale of community involvement
- Perceived value
Scarcity
Economics 101 tells us that value is determined by supply and demand. If demand increases faster than supply, the price increases. The same law of supply and demand applies to cryptocurrency. A cryptocurrency supply is always known. Bitcoin (21 million coins) and $FIMI (32 million tokens) have a fixed maximum supply. Others, like Ether (ETH) have no market cap on their supply. In a perfect scenario, demand should excel the supply currency to make it more valuable. The most popular crypto in the market, Bitcoin enjoys great demand and a rise in value.
Utility
A utility token has a wider functionality and value than a coin. Utility tokens can provide value to users in different ways. For instance, users can get exclusive access to a future product or service. $FIMI tokens are native to the Fimi platform and can be used as a means of payment. Uber tokens can pay for rides, but cannot be used on any other platform.
Scale of Community Involvement
Community is the core of any cryptocurrency project. The tokens are only as valuable as the people who use them and it’s a great barometer for measuring the token’s health. People get excited when a new token launches. Once they are financially motivated to onboard on the ground floor, they join the Discord, Telegram, and/or Twitter feeds and talk to other people about the project. This kind of engagement is a beacon for others to join and learn about the project.
Perceived Value
Cryptocurrency’s value depends on the progress and viability of the project development. Projects that keep progressing, hitting the marks on their roadmaps, launching partnerships, and listing on exchanges become more valuable in the eyes of the market. These are key indicators that contribute positively to the perceived value of the project.
