Where does the value of Crypto come from? Why do people buy?

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Where does the value of Crypto come from? Why do people buy?

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The value of crypto comes from the price people are willing to pay for it. People buy it for a variety of reasons but mostly because the feel that they can sell it later for a higher price and make a profit.

Same reason regular currency does; you can buy stuff with it.

Originally, you could only make online purchases with it, often on less than legal websites. Now, even Tesla dealerships will accept it as payment. And the more it becomes acceptable as a form of payment, the more valuable it becomes.

Same reason people buy gold as investment.

In free market capitalism something if worth as much money as people are willing to pay for it.

If you can convince people that something is valuable they will buy it for a higher price.

Think of art made by famous painters and their exact replica. People will pay more for the original even though it doesn’t provide more material value.

Crypto depends entirely on confidence due to it’s very nature as decentralised without government control. Someone selling things has to be confident that what they receive in payment can be traded.Someone holding crypto has to be confident it will retain value and/or be used to trade for goods or services.

Gold price reflects confidence, but it also happens that gold has some intrinsic value as a metal that resists corrosion, e.g. gold-flashed electrical connectors, and use for jewellery and decorative items.

Gov’t-backed fiat currency also relies on confidence, but behind that there’s assets, infrastructure, industry, services and tax payers able to give value.

The crypto markets are generally fairly opaque. With most of them, you can see which accounts the “coins” are being moved between, but you don’t know who controls the accounts or what the “coins” are being traded for. So it’s not really possible to give a complete answer to this question.

Clearly, there are a lot of people who buy cryptocurrencies because they are gambling that the price will go up. This creates demand and gives them “value”, even if it isn’t built on anything except hope and greed.

Cryptocurrencies have also been used for a lot of illicit activities, due to their opacity and lack of regulation. This includes money laundering, buying illegal goods, paying ransom money, and who knows what else. This also creates some demand and gives them value, because people need to buy cryptocurrency to start buying drugs with it.

They have also been used for a small amount of more legitimate economic activity – some mainstream businesses have occasionally experimented with accepting them as payment. But this is pretty negligible.

Finally, it’s very likely that there are some players in the markets who are artificially manipulating the prices. For example, suppose you run a cryptocurrency-related business, and it’s really important to your business that the price of cryptocurrency stays high. One thing you could do is sell cryptocurrencies backwards and forwards between your own accounts at a high price. This costs you some money in transaction fees, but it makes it look to everyone else like cryptocurrency is selling at high prices, helping boost the price. This particular strategy is called “wash trading”. This kind of thing happens in other financial markets too, but again, the opacity and lack of regulation make it especially easy to do with cryptocurrencies.