As A Crypto Trader, You Need To Understand The Price Disparities In The Marketplace

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Why do token values vary so much?

This is a logical question. If a cryptocurrency token is tied to the value of the blockchain, how come it can go up or down so much in a matter of hours?

The trick is in the wording. A cryptocurrency token, just as a company share, isn’t based on real value. It’s based on perceived value.


Remember that the value of fiat currency is based on trust in the economy? Just as well, the value of a company is based on people’s trust in its success. As for the value of a blockchain? It’s exactly the same.

This concept of trust is why stock and cryptocurrency markets can operate based on offer and demand. When you buy a share in a company, you do so because you believe that a small piece of the company is worth what you pay. And you buy it because you expect the company will do well and its value will go up.

However, if that very night the company’s CEO is found dead in a landfill in Myanmar, a scandal will ensue. As a result of this scandal, the value of the company’s shares, and the company itself will plummet. Even when the company hasn’t changed at all overnight.

This is because, under a scandal situation, perceived value will go down. The company will physically be worth the same, but people won’t want to invest while the case is cleared. So the value of the company will be considered lower, at least for a while.

Blockchains work the same. Offer and demand responds to trust in that blockchain and the projects running in it. If a blockchain is running an app that becomes popular, tokens from that blockchain will gain value. If instead a blockchain is found to have poor security, the opposite will happen.

In other words, offer and demand rule crypto values. And offer and demand to respond to a blockchain’s activities, not to the tokens in it. The tokens are symbolical and worth only as much as what the blockchain is being used for.

Having said all this, we hope it’s easier to understand why blockchain technology affects cryptocurrencies, but not the other way around. The more uses we have for blockchain, the more cryptocurrencies in those blockchains will be worth.

Last Words

If a blockchain scores a contract to run a system for the US Department of defense, for example, the value of its tokens will shoot up. If a month later the contract is rescinded, the token value will go down.

What this means is, the token value is an indicator of a blockchain’s trust and stability, not the other way around. Token value responds to what goes on in the blockchain and with the blockchain, so when crypto traders buy tokens they’re trusting the blockchain, not the tokens themselves.

It’s the kind of thing that can be difficult to understand at first. But yes, cryptocurrencies are more than digital monopoly money. They represent just as much as a company’s shares do.