Where does the value of Crypto come from? Why do people buy?
In: 0
The value of all things, in the end, is set by supply and demand. Real estate, stocks, bonds, private companies, and yes, crypto.
I’m not a crypto enthusiast so perhaps someone here can add anything needed, but the idea is that, at some point, crypto can serve as a medium of exchange. Each one has its own quirks, but overall, the theory goes that the blockchain (a system for how computers use math to talk to each other to make sure no one is corrupting the system) controls how many of these tokens there are and can authenticate ownership through “keys” which, if you have, verifies that you are the holder. I can beat you up and steal your information, but I can’t hack the system. It can cross borders seamlessly, central banks can’t print it, and transactions are untraceable (at least for Bitcoin). Of course, there’s big questions as to whether the stuff will ever be able to serve as a means of exchange, but perhaps one day it could be, for example, let’s say Chinese factories start preferring payment in Ethereum over USD or CHY, and if you buy now, you’ll see massive gains, because J. Crew and American Eagle will need to buy Bitcoin to pay their suppliers (no talk of anything like that happening, just an example). So far, the only real-world use of cryptos I’ve heard at scale are crimes (because it’s not traceable) and NFTs (those have to be bought in crypto, you can make your own decision about that).
Of course, it could be that none of this stuff happens, it’s just a really, really cool technology that has minimal real-world applications. But, what has happened is the markets have so much liquidity that people would buy, and then people would see the price rise and get excited and buy, which that demand that drives up price, which causes more people to…and the cycle continues.
Truth is a lot of people bought not because they understand or believe in the technology, but because they were hoping to ride the price action for quick money. And there’ve been a lot of bad actors leveraging such enthusiasm to scam them out of money. Most often these people eventually get washed out.
Latest Answers