A lot of people have been finding it very difficult to value cryptocurrencies the right way. This is actually, one of the major reasons why most beginners in the cryptocurrency investment or trading world loose huge money. It’s either they invested in a crypto coin that has little or no value at all.
Some investors claimed that the value of any cryptocurrency comes from its speculation, but we doubt if that is the case in the real world of cryptocurrency market.
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Value of cryptocurriencies depends solely on some number of factors that are very important to their existence. These factors of valuing cryptocurrency mostly start with the fundamental analysis of cryptocurrencies.
Valuation of Cryptocurrency
For investments in stock exchange, how to value a currency is by evaluating the health and its viability of the financial statements. If the asset looks good in number, then, investing that particular currency can be confidently considered.
However, crypto coin value is determined in an entirely different way, since there are no financial statements to analyze before cryptocurrency investment is considered for any asset.
Now, the question is; why does cryptocurrency have value that is not calculated using the financial statement?
Basically, it’s because:
1. They are digital
Cryptocurrencies are not corporations, but digital in natural, meaning, that they only exist on the blockchain of the products they represent their value or assets online. They are mostly decentralized.
Its viability is totally based on the participation of its users and their commitments in building the community behind the product. This is to say that, cryptocurrency viability is no in any way based on generating revenue or income to their user.
2. They are still new
The entire crypto-space is still in its infancy stages, and almost every cryptocurrency in the world is still a new product or in the development stages.
This means that cryptocurrencies has little or limited usages in the real world, and therefore, they lack tracks of history records to show.
How are Cryptocurrencies Valued
Fundamental analysis on the cryptocurrency valuation model must be performed with a different methodology in mind.
Following the complex nature of cryptocurrencies and the technology behind all of them, it is even more important for you to engage in thorough research to ascertain the viability and potentials of the crypto-coins.
This is to ensure that great cryptocurrency investment decisions are being made in the cryptocurrency market. These decisions are what will be guiding you in loop of investments for each of the coins you may want to invest your hard earn cash.
Why is Cryptocurrency Valuable?
There are different factors that can be used to express what drives the price of cryptocurrencies, even these factors may not be true for all the crypto coins.
For a cryptocurrency to be valuated, it must have features of Gold or Money in the real sense of viability. Thus, as a method of exchanging values, it must have similar factors to that of the financial assets in the real world
How Crypto Value Increase?
These factors we’re going to discuss are what explained what determines the value of cryptocurrency or answers the question of how does cryptocurrency value increase.
They contribute to cryptocurrency value increase through: Utility, Scarcity and Perceived Value. Now let’s talk about the factors to what makes cryptocurrency valuable one after the other.
A crypto-coin must have a strong function to incentivize people to hold the coins. For example, in order for anyone to execute commands and develop applications on Ethereum Blockchain, one needs to have ETH, as it will be converted to gas, which represents ‘fuel’ for the ecosystem.
Therefore, ETH is used to fuel transactions and development. The more people develop Ether DApps and execute transactions, the greater the demand for Ethereum will push prices up.
Word of Mouth
Cryptocurrencies are very popular mostly on the social media networks. Most cryptocurrency transactions takes place on the social media, and many individuals can trust the transactions.
This is also why many cryptocurrency scams have started trending recently.
Currently, there is a service in the Bitcoin blockchain that is known as Lightening network. This is a program written to help increase the transaction speed of Bitcoins from one place to another within seconds.
In economics, a fixed supply of a certain item would increase its value in the long term, assuming the demand increases from what it used to be like. This creates scarcity, as there is only a limited supply of coins in circulation. Let’s take bitcoin for instance; the cryptocurrency is pegged to a fixed amount of 21 million coins.
Especially for coins that have great utility, demand will undeniably elevate its value. That is why burning mechanism in some crypto-coins is employed to destroy excess portion of the coins supply. This will definitely increase the value as there is less supply of the coins.
The markets of a particular cryptocurrency can also contribute to how valuable the coin will be. Once the cryptocurrency is valued high due to the factors that are core to the development of the project, the value of the cryptocurrency and demand will increase drastically.
Additionally, collaborations and partnerships with credible companies or other projects is a good sign of expansion.
Other news that can enhance the perceived value in the eyes of the market includes a successful launch of their Minimum Viable Product (MVP) or the beta version of their protocol/software.
These are positive indicators of good progress by the project and will enhance the value of their coin.
How to Value Cryptocurrencies
This is my own opinion and finding towards how to value cryptocurrency. And without these factors, i don’t think cryptocurrencies will have valued as par say.
If you would remember a fake project known as The Billion Coin, that self proclaimed itself to be the Bitcoin direct rival. This coin failed to deliver these monetary values, just like every other cryptocurrency. The crypto coin value fell below its expectation, and even before it could make its way to have blockchain (which it never planned on having).
Make sure to bookmark this page and also share it to friends who would need to know how to value a crypto-currency before investing in it. I wish you good-luck in your next-up cryptocurrency investment after valuing it using these fundamental analytical factors.