Crypto Education

What determines the value of Cryptocurrencies - Unveiling the Key Parameters that Help to Identify the Value of Digital Currency

bitcoinsThe cryptocurrency seems to have a promising future, but a question that comes to the mind is what has led to the hype of the digital currency. The interesting element about the digital currencies is that they tend to show resistance to censorship and it is not that easy to shut them down.
The digital currency has introduced the concept of public ledgers. This has eliminated the need for the third party to ensure the element of transparency. These are some of the evident benefits of digital currency, but a question may come to your mind. What are the criteria to determine the digital currency value? This is why we will look at those parameters that help to define the digital currency value.

Global acceptance

There is no denying the fact that cryptocurrencies have been able to gain massive acceptance. Currently, the number of digital currencies is limited, but the demand has increased. This means that there is bound to be an increase in the value of the cryptocurrency.

Currently, many platforms have allowed the digital currency to be used as a mode of payment.  For example, Cryptogrind is a platform where the freelancers are paid through bitcoins. If people discover the use of digital currency in their everyday life, then this will probably contribute to the value of the digital currency because this means that a bright future awaits the cryptocurrency.


The production cost has a role to play

When we have to identify the factors that affect the value of cryptocurrencies, then we cannot ignore the production cost for sure. There are two times of costs that are involved in the production. One is the opportunity cost, and the other one is the direct cost. 

Let us assume that the Bitcoin has a high production cost. The energy and the resources that have been put to use for mining can be a reason for the high production cost. At times the electricity cost can shoot up when mining cryptocurrency. For example, the electricity cost for mining the bitcoins is about $6.2 billion each year.


The massive increase in demand

One thing that we have to mention is that the usability of the digital currency has increased dramatically over the recent years. This is primarily because of the introduction of major digital currency exchanges. The usability of the cryptocurrency has contributed to the market capital.

This is why more organizations are trying to figure out a way to adopt the digital currency.


Fiat currency inflation

The inflation of the fiat currencies also contributes to the value of the digital currency. If the value of a specific fiat currency experiences a decline, then in most cases the price of the Bitcoin is bound to go up concerning that particular currency. The reason is that you will get a chance to get more of that specific fiat currency using your bitcoins. This phenomenon is prevalent nowadays. This means that the digital currency does seem to have a promising future.


The aspect of Regulation

We have to accept the fact that the regulatory policies also have a role to play when it comes to pinpointing the value of the digital currency. There is a strong probability that the digital currency will soon be regulated by the Government when it goes mainstream. This will also impact the value of the digital currency. There are also chances that the digital currencies may adopt a centralized nature once they become regulated. Once the digital currency becomes centralized, then this will affect the price of the cryptocurrency.


Understanding the node count

If you have to identify the value of the cryptocurrency, then you cannot ignore the node count also. The node count can be termed as a vital indicator for determining the value of the digital currency. The node count is used to measure how many active wallets exist on a specific network that can be searched through the internet. If you want to analyze whether a specific digital currency has the appropriate value, then all you need to do is search the node count of that specific digital currency.

Secondly, you will also need to search the market capitalization of that particular digital currency. Once you have the total market capitalization and the node count, then you will have to compare these two parameters with the other digital currencies available. 

The best thing about pinpointing the node count is that it helps you determine whether a specific digital currency is overbought. The node count can also help to identify the community sentiment for a specific digital currency. What you need to remember is that the value of the digital currency can change fast, so you have to keep this into consideration when you make up your mind to invest in digital currency. This way you can avoid any possible losses.

Risk Warning: Trading may not be suitable for everyone, so please ensure that you fully understand the risks involved. Especially trading leveraged products such as Forex and CFDs carry a high degree of risk to your capital and can result in the loss of your entire capital. Only invest with money you can afford to lose.