Are Cryptocurrencies Really Worth Anything?

October 18, 2020
655 Views

People who begin researching the cryptocurrency markets often ask a pertinent question: “how can I know the value of a given crypto coin?” It’s a completely reasonable thing to ask. Unlike dollars, gold, works of art, and hundreds of other assets, cryptocurrency is both new and intangible. Traditional money and precious metals have been around for thousands of years, so no one doubts their inherent value. And for anyone who wants to venture into crypto trading, the stakes are even higher, and the question becomes central to the entire concept of buying and selling cryptocurrencies for profit.If you are among the many who want to trade this new form of money, here are some answers to that extremely relevant question about what gives these newfangled forms of money their value. Cryptocurrency has real, measurable value as a result of six factors which some people remember with the acronym FILM US.

Founders

The better the founding team and in-place managers, the more value the coin will have. This is not a hardandfast rule, but it applies in most cases. Investors who are seeking solid opportunities usually check out the team’s credentials as a first step, just to make certain they key players possess relevant experience and good reputations.

Incentives

Stock investors sometimes look for shares that come with dividends. People who intend to hold crypto are the same way, it’s just that the incentives are a bit different. There are no dividends per se, but there are a few coins out there that offer rewards for long-term holding, or for buying a large amount. In retail, this kind of enticement is called a volume discount or loyalty rewards. Whatever coin you wish to add to your crypto portfolio, check carefully to see if there’s a reward structure that might make sense for your time frame or the amount you want to purchase.

Liquidity

It’s the same as in the stock market in that coins that have a built-in group of buyers and sellers are more valuable than those that do not. Imagine plunking down several thousand dollars for a cryptocurrency, watching it risk in price, and trying to sell it the next day. If you can’t find anyone willing to buy from you, what good is the asset? In virtually every realm of economic activity, liquidity equates to value.

Market Capitalization

Generally, coins with extremely high market caps don’t have the potential to rise in price as much as those with very low caps. Anyone who has ever owned a penny stock share knows this phenomenon well. Huge corporations seldom see doubling or tripling of their share prices, but tiny startups often do. The same principle applies with crypto money, so always check out capitalization before investing.

Usefulness

If you can’t spend it anywhere, it’s not really money. Check your prospective coins to see what businesses accept them. If you can’t find any takers, consider moving on to another opportunity.

Supply

Basic laws of economics are universal: scarcity adds worth to any asset. If everyone has plenty of it, then it’s virtually worthless. Do your due diligence and learn about the current and potential supply of any currency you consider adding to your holdings.

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