Any investment asset, be it stocks or property has some fundamental value that helps drive its overall price. As a mining or development company, the potential for profit determines how much you can sell for and even at what valuation you should do so. Since Bitcoin or rather crypto currency in general is decentralized, there isn’t just one factor to consider but many
So why would anyone want to invest in virtual assets? The primary reason is simple, there are gains to made by doing so. When you buy Bitcoin or another crypto currency as an alternative you are looking at two general directions when it comes to appreciation of your currency: #1 Holding – You expect the value of the coin will rise over time which will result in gains. #2 Speculation – You want to trade your tokens in the hope that you can make a profit by buying high and selling higher on an exchange.
Overpayment or underpayment?
The value of Bitcoin has always been justified through its limited supply, which is why it’s historical rise is so impressive compared to any stock market. Its price has increased over time as more people wanted to invest in it due to how well it was performing along with the fact that new coins would be mined over time until its supply finally runs out. When we look at other virtual currencies like Litecoin for example, they have tried to establish themselves by having improved technology and smaller supplies which could increase their overall success rate . Due to all these reasons, you wouldn’t want to invest in a coin if you knew its supply was infinite which would render it’s value almost worthless.
This is the case with several other alt coins which will be covered later in this article.
Small supply doesn’t mean that it’s value can’t fall significantly overnight though. Speculation is a risky business and no one knows when an accident or country ban is going to happen so you just have to take the risk of buying at a high price hoping that it will drop before you sell. There are good reasons why some people don’t want to buy a currency at its current market price as they are expecting it to go lower. Its also worth noting that most exchanges don’t allow you to short any crypto assets, so your options would be limited if you wanted to bet against their future price unless you had already purchased them or were mining yourself without creating an account.
Who controls the supply?
Another aspect of crypto currency that can’t be ignored is how much control its market has compared to traditional stocks and shares. Traditional assets rely on companies to manage their supply and value based on its success or failure while crypto currencies are managed by miners who have pools which decide their output in order to keep the coins at a stable price . The only way you are able to increase your holding of digital assets is through mining, but if the coin isn’t profitable then it might not be worth it even though new coins are created every day. Litecoin for example uses an algorithm called Scrypt which makes it more difficult to mine than Bitcoin which uses SHA-256 as you would need faster rigs with higher memory. Normally you would be able to increase the performance of your miners by upgrading them but in this case, memory makes more difference than speed as faster hardware is usually specified with a higher amount of threads which can’t always determine its effectiveness. As mining pools get bigger and don’t have any competition from other miners they are able to control the supply until it reaches its maximum cap, resulting in coins being mined way faster than their official schedule.