The demand for a coin rises as its usability increases. This, in turn, increases the value of the coin. However, there are still other factors that can be used to evaluate the value of a cryptocurrency.
How to Evaluate the Value of Cryptocurrency
Most investors and retailers are zealous about cryptocurrency. Although there is a factor they are all worried about – volatility. The massive drops and hikes in the value of cryptocurrencies can push any crypto lover into thinking about its valuation. Of course, there are some factors that affect the value of a crypto. Here are some you can use to evaluate a cryptocurrency’s value:
Unlike fiat currency, a cryptocurrency is not visible and tactile. However, their usages are quite similar. This is thanks to big online exchanges which have drastically increased their usability. This has led to its increased market cap over the past few years. Demand is a factor that can be used to evaluate a crypto's value based on its acceptance and usage.
The value of cryptocurrencies has appreciated over the past few years because of their soaring popularity, and adoption by more countries, governments, and companies. These have fundamentally driven its value. Hence, the more general acceptance a cryptocurrency gains, the more value it will have.
2. Node count
Another good indicator that can be used to evaluate the value of a cryptocurrency is its node count. For a cryptocurrency, node count refers to the number of active wallets that can be searched on the homepage of a currency or the internet. It is also a factor that determines if a coin will be able to overcome market crises.
To analyze if the price of a currency is fair or not, you just have to search for the total market cap and node count of the cryptocurrency. Comparing these two indicators with other cryptocurrencies will help you evaluate a crypto’s value.
3. Production cost
The value of a cryptocurrency is also determined by the opportunity cost and direct cost of producing a coin. For instance, the production cost of Bitcoin is high. The reason why it has value is because of the amount of energy and resources that have been put into its mining.
Furthermore, the value of a coin is also determined by the cost of producing specialized hardware such as servers or GPU's/CPU's. The cost of manufacturing the hardware's cooling systems is also a determinant. These are factors you can use to evaluate the value of a cryptocurrency.
4. Inflation of fiat currencies
The price of Bitcoin, a cryptocurrency will rise if the price of fiat currency falls. Bitcoin’s rise in value will be with respect to that currency. This is because, with Bitcoins, you will be able to get more of that currency. This applies to many other cryptocurrencies too.
It is a phenomenon that is prevalent today. This is since ECB, FED and other central banks keep printing more money, artificially keeping interest rates low.
5. Market regulation
Another factor that can be used to evaluate the value trends of a coin is market regulation. These regulations are made by professional traders. In the crypto world, it is known as the works of the "whales.”
A whale can be a group or an investor with the most valuable cryptocurrency address. This cluster of investors has enough power to cause a drop or rise in the value of the coin.
The value of a cryptocurrency can change rapidly. Still, you can evaluate the value of a coin. Although all these factors combined cannot give you the precise value, they are still the fundamental factors that control the price of a cryptocurrency.