Why is a cryptocurrency falling? How does a cryptocurrency increase in value? Find out what are the factors that influence crypto prices.
CONFIDENCE IN VIRTUAL CURRENCY First, as with any currency, virtual or real, the founding element is trust. People need to trust cryptocurrencies in general and trust a particular cryptocurrency, but that’s not impossible – far from it. During the Greek crisis, some massively bought Bitcoin, a currency that inspired them more confidence than that, real and regulated, which suffered the full brunt of the monetary crisis and had to face galloping inflation.
The number of users of the cryptocurrency. What also makes the value of a virtual currency is the importance of its network and the number of people who use it all over the world. The more users a cryptocurrency has, the more its value increases, which means that the price of the token goes up.
Two essential factors will push people to buy a virtual currency: the penetration rate in the real economy (i.e. the ease with which one can buy goods and services in real life by paying with said cryptocurrency) and the prospect of positioning itself in a crypto-asset while achieving a relatively large capital gain. Speculation is still the main driver of the development of cryptocurrencies and their prices vary considerably depending on the appreciation of traders who think they will make money easily or not on a particular token, creating bubbles as in 2017-2018.
Intrinsic value doesn’t really come into play. And the situation is very likely to continue as long as demand in the real economy remains relatively weak. The growing democratization of virtual currencies is boosting the price of cryptos. The democratization of virtual currencies reflects the growing confidence of the general public in this type of asset. Individuals will now be able to pay for more purchases of goods and services via virtual currencies with their PayPal account as we have seen previously or with the future Facebook token, the Diem, which will make it possible to pay for purchases on the marketplace of the famous social network.
Governments and central banks are also showing more inclination to adopt virtual currencies with an effort made on the regulation of cryptocurrencies and the emergence of digital currencies from central banks.
Finally, the financial markets also seem to be making room for cryptos. Many brokers now offer to invest in virtual currencies. Several large investment banks have a unit dedicated to crypto assets, and more and more traditional funds and hedge funds are positioning themselves in crypto assets.
Last notable event: Coinbase, the American cryptocurrency exchange platform, should soon go public.