A question that I consistently hear from new entrants is: what is the value underlying cryptocurrencies and crypto tokens broadly? It’s clear that speculation is the main driver of prices, but what may not be clear is that there actually is fundamental value underlying the speculation. With the proliferation of new tokens being created though, some tokens offer holders fundamental value while many others do not. How does one differentiate the value from the junk in such a noisy space?
Bitcoin is a volatile asset (relative to FIAT) and this fact should be taken into consideration, especially in the days when the Bitcoin value is moving sharply. Bitcoin and Altcoins have an inverse relationship in their value, i.e. when the value of Bitcoin rises then Altcoins are losing their Bitcoin value, and vice versa. When Bitcoin is volatile, our conditions for trading are kind of foggy. During fog we can’t see much ahead, so it is better to have close targets for our trades or not to trade at all.
Do you have other tips to contribute? I'd love to hear them in the comments
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A very good post.
I will add that the "value" of something like bitcoin is based solely on the faith that people have in it as either a currency or a store of value. Why is gold so valuable? Why was aluminum the metal of choice of royalty hundreds of years ago? Yes, scarcity was one reason although aluminum, as we found out, was plentiful.
The only reason the USD has held up around the world is because people put their trust in it. Some guy handing you paper from some isolated island in the Pacific might not be worth much to you. It is the same with BTC. There are hundred of thousands, if not millions, around the world who trust in bitcoin. That is the value. Until these people lose that trust, it will continue to have that value. The USD had the trust since it was backed by the US government who people thought trustworthy. Along the same lines, bitcoin has the trust of people because it is backed by no government, hence making it trustworthy
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True.
Thanks :-)
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