5 Reasons That Affect The Value Of A Crypto Asset
If you are new to the crypto market, a few of the things can be confusing such as the value of a crypto asset, market cap, and more. In this blog, we will explain in detail the reasons that affect the value of a crypto asset.
Cryptoassets and their value
Cryptoassets are digital assets that use peer-to-peer technology to complete transactions without the intervention of banks or any central authority. They use public ledgers, Blockchain to ensure safety, transparency, and speed to conduct the transactions.
Top 5 reasons that affect the value of a crypto asset –
- Supply and Demand
- Mass adoption
- Availability on Exchanges
- Production cost
- Regulation
Now let us discuss in detail what makes the value of crypto-asset go up or down –
Cryptoassets Supply and Demand
The simple rule of economics also applies here, if the demand is greater than the supply, the price goes up. The supply of most of the crypto assets is limited while others use the Burn method from increasing supply too much. Supply also depends on the number of new blocks mined in Blockchain.
The demand depends on various factors such as positive news, increased interest, celebrity backing, etc.
Cryptoasset Mass Adoption
When a crypto asset gains huge popularity and is adopted as a payment method then the value of that crypto-asset shoots through the roof. For example, some company announces their plan to accept crypto for payment, the value of that crypto would skyrocket because of the increased demand.
Cryptoasset Availability on Exchanges
The popularity of a particular crypto asset increases with the number of exchanges it is registered with. Leaving the top few cryptocurrencies which are available on all the exchanges worldwide, for new cryptos the more the number of exchanges it is available on, the better its price would be. Because of increased visibility, crypto-asset get wider attraction and more interest thereby increasing the value.
Production Cost of A Cryptoasset
Cryptoassets mostly use decentralized proof of work system, where miners use time, energy, expensive equipment, and electricity to mine for new coins. Also when competition increases, it becomes more difficult to mine for new blocks. And the cost increases with more competition. Miners are rewarded with coins as well as fees. To create enough interest for the miners to keep on the work and recover costs with benefits, the value of a crypto asset has to go up.
Cryptoasset Regulation
Due to the increased interest in crypto assets, governments have started taking interest in them and trying to find out ways to regulate this market. Some countries are ready to adopt this as currency while others want to impose a tax as well as bring it into the purview of the central authority. Some countries are still silent on the booming crypto market which leads to speculation and in turn affects the value of a crypto asset.
Some of the reasons mentioned above were responsible for the decline in market capitalization of certain currencies today. Environmental factors such as Carbon footprint and Omicron variant threat also affect the economy as well as the value of a crypto asset.
