2) Political risk
Before we study the factors that drive the value of Cryptocurrency and Cryptoassets, it is pertinent to form a differentiation between the two. Both these terms are used interchangeably, which is something which does not pay justice to their individual meaning.
The Difference between Cryptocurrency and Cryptoassets
A cryptocurrency can be referred to as a cryptoasset, but you cannot merge the broad term of cryptoassets under the term of cryptocurrency.
Cryptocurrencies were generally designed and created to be implemented as the replacement for cash in the future. On the contrary, digital assets, serve a purpose much greater than that of digital currency.
Simply put, digital assets are the data that exists in binary files.
These can be considered as tangible things of ownership that are stored on digital devices like smartphones and computers. Cryptocurrencies can be mined, but digital assets are only issued during the ICO or initial coin offering of a new crypto currency.
What Drives Their Value?
Having studied their similarities and differences, it is best to now have a look at the factors that drive the value of all cryptocurrencies and digital assets.
All precious metals have a higher value, because the supply for them is extremely limited.
What makes Bitcoin and other CryptoCurrencies go up in value?
Supply/demand is an economic factor that has influenced the way commodities have been priced for a long time. Bitcoin and numerous other cryptocurrencies are classified as assets in some countries but as currency in others.
If the supply for a cryptocurrency is low, the demand for it will increase in tandem with its value.
Public perception is an increasingly important factor driving the value of all cryptocurrencies.
In the case of bitcoins, the positive reaction of the people who considered it as an innovation over the corrupt banking system can be considered as a driving factor.
Simultaneously, the security provided in exchanges online also has a role to play in influencing the perceptions of the public.
Hacks to these exchanges can affect the reputation of all cryptocurrencies including Bitcoin.
On the contrary the launch of enhanced security on wallets and payment gateways can create a positive wave of interest and enthusiasm.
Utility of the Cryptocurrency or Asset
The utility of the cryptocurrency and cryptoassets is a key factor in driving the value of the specific currency. If the user cannot use the cryptocurrency for something like regular payments and investment purposes, than the currency would have an extremely low perceived value in the eyes of the user.
If we take the example of bitcoin, the currency can be used in numerous transactions and is preferred by users on an increasing scale.
The high utility of bitcoins means that it can be used in multiple ways for multiple purposes.
1) Animal spirits
The Media and its stance towards cryptocurrency can either be a positive or a negative factor. The perception that the media creates in the eyes of the users often influences their purchasing patterns and the interest that they show towards cryptocurrencies.