With everything happening in cryptocurrency right now, I find myself really, really, trying to see the value behind buying these crypto coins. This is simplified but I was hoping someone here could shed some more light on what the
actual value of these coins are.
- The coins are bought with dollars (or other gov't backed currencies, for the sake of argument I will just use USD).
- USD yes are fiat, but at the end of the day they represent time, labor, & goods. This system came into place because back in the day it was very hard to bargain with non-comparable goods. For instance if a coffee farmer needs more cows, the only thing they could do before fiat currency is find a cow farmer who also needs coffee and make a trade. With fiat currency they can sell for dollars (which represent their goods).
- I buy 10$USD worth of bitcoin when bitcoin's price is 1$/coin. So I have 10 bitcoins. Then bitcoin's price goes up to 100$/coin and I now have $1000USD in bitcoin.
My real question is - where is this value coming from? Why is the price of the coin going up while the price of dollars is relatively stable? When investing in traditional securities - investors tie the stock price to the actual value of the company in hopes of dividends, or selling at a higher price later because the company's value grew (having more cash, assets, etc).
So right now crypto's price is high. Does this just mean people are willing to pay a higher premium for a coin because they think in the future it will be more powerful than USD (and will become the de facto standard)?
- The coins are bought with dollars (or other gov't backed currencies, for the sake of argument I will just use USD).
- USD yes are fiat, but at the end of the day they represent time, labor, & goods. This system came into place because back in the day it was very hard to bargain with non-comparable goods. For instance if a coffee farmer needs more cows, the only thing they could do before fiat currency is find a cow farmer who also needs coffee and make a trade. With fiat currency they can sell for dollars (which represent their goods).
- I buy 10$USD worth of bitcoin when bitcoin's price is 1$/coin. So I have 10 bitcoins. Then bitcoin's price goes up to 100$/coin and I now have $1000USD in bitcoin.
My real question is - where is this value coming from? Why is the price of the coin going up while the price of dollars is relatively stable? When investing in traditional securities - investors tie the stock price to the actual value of the company in hopes of dividends, or selling at a higher price later because the company's value grew (having more cash, assets, etc).
So right now crypto's price is high. Does this just mean people are willing to pay a higher premium for a coin because they think in the future it will be more powerful than USD (and will become the de facto standard)?