What Determines the Value of Cryptocurrency?

What Determines the Value of Cryptocurrency?

With over $189Billion USD (as of 2019) in cryptocurrency in circulation globally, it is clear that cryptocurrency tokens/coins are here to stay, with continued adoption as tools for both investment and everyday transactions over the coming years.  For those holding cryptocurrency assets, checking the price movements of your favourite cryptocurrencies is a daily routine that often becomes a habit which is difficult to skip. 

While there are a variety of key factors which can impact the value of cryptocurrency and cause volatility in the market, the most important factor which determines the price of cryptocurrency is the “Supply & Demand” in the market.

The law of supply and demand

To simply put it, supply and demand relates to the interaction between buyers and sellers to determine the market price per token. The price of the token will rise when there’s a high demand for it in the market. Take diamonds, for instance. The supply for diamonds is conflicted with the high demand resulting in a higher price. 

How does it relate to crypto?

This theory applies similarly to the cryptocurrency market. Let’s take EVR token for example. If the supply of EVR token is limited and the demand is high, it would drive up the price of the EVR token. On the contrary, the value of EVR token will decrease when there is a high token supply, but low demand. 

What about Stable Coins?

Stable coins refer to specific crypto that is pegged to another stable asset. For example, Trullion-e is pegged to gold whereas, Tether is pegged to the US dollar. Stable Coins are commonly used for global business transactions and preferred by many (in comparison to crypto tokens) due to its store of value that barely shifts making it unaffected by the law of supply and demand.

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