If you are planning to invest money in cryptocurrency, it can be beneficial to have an understanding of the factors that affect the value of the currency . Compared with traditional currency, there are relatively large fluctuations in the value of cryptocurrency.
The value of bitcoin can, for example, fluctuate as much as 40% in the course of a month, which makes the currency far more volatile than, for example, Norwegian kroner.
Here we will take a closer look at what affects the value of cryptocurrency.
First of all: Why does cryptocurrency have value at all?
A currency has value first and foremost because people consider it to be valuable . When someone thinks that something is of value, it is often used for trade. This applies to both Norwegian kroner, US dollars and cryptocurrencies.
If you shop with Norwegian cash in a store, the banknotes or coins do not in themselves have a value. They are nevertheless perceived as valuable, because society has decided that it should be so.
Cryptocurrencies such as bitcoin are perceived by many as valuable, which leads to demand. This in turn helps to determine how much the currency actually costs to buy.
You can in many ways compare cryptocurrency with gold. There is no inherent value in gold, but people’s desire to own gold (because it is beautiful, gives status or the like) causes the gold to have a value. Many are therefore willing to pay dearly for gold.
Many people believe that cryptocurrency has an enormous value – now and in the future:
Supply and demand determine the value of cryptocurrency
Like so much else in life, supply and demand are the most important factors when it comes to the value of cryptocurrency. If many people want to invest in a cryptocurrency and the supply of the currency is small, this will contribute to an increase in value.
If, on the other hand, there is little interest in cryptocurrency and the offer is large, the prices for buying the currency will fall. Here are some of the factors that affect the supply and demand of cryptocurrency:
Trends and media coverage
Whether many people want to invest in cryptocurrencies such as bitcoin or not will be partly governed by trends, news and social media coverage.
For example, if there is a news article that investing in bitcoin can be profitable right now, this increases the chance that many will want to make a bitcoin investment. The same applies to positive publicity in social media or other channels.
It has been decided that there will be a maximum of 21 million bitcoin units. There will be no more bitcoin than this. The limited circulation of the currency is an important reason why the currency has value at all.
Had there been an unlimited circulation of a currency, “everyone” would have been able to obtain it almost for free. This in turn would have led to a lower value.
For a currency to be of value, it is also necessary to be able to use it – for example for trading, exchange and private transfers. Cryptocurrency is transferable and can be easily transferred from one digital crypto wallet to another.
To be able to transfer the currency, you only need to know the recipient’s public key (which is the address of the wallet). The public key can be considered as an account number for the transfer of traditional currency such as Norwegian kroner.
Unable to copy
Cryptocurrencies such as bitcoin are based on blockchain technology, which means that no one can copy or counterfeit the currency. In the blockchain, all transactions will be registered, and the system ensures that the original rules set for the cryptocurrency are observed.
Since the currency can not be copied, it will also be more attractive to invest in. You do not have to worry about the cryptocurrency being counterfeit.
The value of cryptocurrency can potentially increase
Perhaps the most important reason why people invest time and money in cryptocurrency at all is that they hope that the value will one day increase. If you buy cryptocurrency but it is cheap, and sells while it is expensive, it is possible to make profitable investments.
If many people believe that cryptocurrency is profitable, demand will increase and thus also value. At the same time, one should keep in mind that cryptocurrency investments can be very risky since the value can also fall sharply.
Where can I get an overview of the value of cryptocurrency?
If you plan to invest in cryptocurrency, it may be an idea to follow the exchange rate for the individual variants. You usually get a good overview of the price of trading platforms such as eToro and Binance.
For example, if you are interested in investing money in bitcoin, ethereum or similar, you will be able to see what the price for one currency unit is. You will usually also be able to see how much the currency has gone up or down in value in the last 24 hours.
Should I invest in cryptocurrency?
Before investing in cryptocurrencies, it is important to keep in mind that the money you are investing may be lost. There is absolutely no guarantee that the cryptocurrency will increase in value, and there is perhaps just as much chance that the opposite will happen.
Feel free to invest a small amount to begin with, so that you get an idea of how it all works. That way, you can prevent a possible decline in the value of the cryptocurrency from ruining you financially.
It is also wise to keep in mind that buying cryptocurrency is most beneficial when you want a long-term investment. It is a good idea to have some ice in your stomach, and wait until the currency has achieved a significant increase in value before you sell again.
Where can I buy cryptocurrency?
If you want to buy cryptocurrency, there are several secure trading platforms or crypto exchanges to choose from. With these, you can buy a number of different types of cryptocurrency, and get your own digital wallet for storing the funds.
Here are some of the most popular crypto exchanges:
It is a good idea to trade with a crypto exchange that has been on the market for a long time, as this indicates that it is safe and proven.
Feel free to contact us if you have any questions about cryptocurrency and its value, or are wondering about other things about crypto. We give you the overview you need!