Cryptocurrency such as Bitcoin, gains value by its increasing utility and various supply/demand factors
Contrary to what you may hear from uninformed investors, cryptocurrency most certainly has value.
Value that at this point in time, seems very cheap when you consider the massive growth that the industry as a whole is currently experiencing.
Primarily, cryptocurrency gains value for two reasons:
- Utility: By doing a particular job such as how Bitcoin can be used as a permissionless medium of exchange or store of value nobody can touch.
- Supply/demand: Simply by having more people wanting to buy, than sell.
How is the value of cryptocurrency determined?
Let’s go into more detail around the two primary reasons that cryptocurrency gains value.
Utility
Having utility, simply means that the cryptocurrency can be used for something.
That it’s required to solve a particular problem and can do it better than something else.
Utility is obviously valuable.
I used the example of Bitcoin’s utility being that it can be used as a permissionless medium of exchange above.
Essentially that means its money that nobody can take away from you or block you from spending.
Alongside it’s secure network ensuring Bitcoin can be used as a store of value, Bitcoin clearly has utility.
Supply/demand
Going hand in hand with utility, is the supply/demand balance of a cryptocurrency.
If there are more buyers than sellers, then the price will go up.
If there are more sellers than buyers, then the price will go down.
Pretty straightforward, right?
People will always be buying or selling for different reasons, but if a cryptocurrency has utility, then there will always be a base level of demand.
As long as you have people using the network, you will always have demand.
If you always have demand, then cryptocurrency will always gain value.
And that’s ultimately what you should be looking for when making a decision around which cryptocurrency to hold.
How to best compare the value of each cryptocurrency
When determining the value of cryptocurrency, it’s important to look at more than just the price of your token.
One popular way of determining the value of a cryptocurrency is to instead use market capitalisation.
Market capitalisation equals the total circulating supply, multiplied by price.
(Market Cap = Total Circulating Supply * Price)
For example, take a look at DOGE and HIVE.
Both have tokens around the 50c price and on the surface look similarly valued.
But let’s take a deeper look at the numbers:
Dogecoin has a circulating supply of 129,624,091,405 DOGE and a coin price of $0.4946.
129,624,091,405 * $0.4946 = $63,504,095,413 market cap.
Compare this to our very own HIVE which has a circulating supply of 401,004,086.62 HIVE and a similar coin price of $0.4862.
401,004,086.62 * $0.4862 = $196,322,393 market cap.
Even though HIVE and DOGE both have coins around the 50c price, market cap shows us that the total value of Dogecoin is actually higher.
MUCH higher.
Will the value of cryptocurrency continue to increase?
It's highly likely that the overall value of the cryptocurrency market will continue to rise.
But this will be led by only the most efficient cryptocurrencies that solve real world problems.
Only coins with utility will be able to sustain their damnd and build on their value this way.
I'll wrap up with a question.
Will allowing people to make fast money blogging, be the utility Hive needs to create demand and survive?
Best of probabilities to you.
Direct from the desk of Dane Williams. This blog is exclusive to leofinance.io
Why not leave a comment and share your thoughts around how cryptocurrencies gain value in the comments section below? All comments that add something to the discussion will be upvoted.
This Bitcoin blog is exclusive to leofinance.io.
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