How do you determine the price of a digital currency?
So how do you actually determine the exchange rate of the different currencies? The answer could not be simpler. The price is determined on the basis of a number of factors, often unpredictable, which influence the supply and demand of the market.
We still use Bitcoin as an example. The rarity has been introduced into the system since there are only 17.5 million coins in circulation, and the maximum total quota will be 21 million, probably in 2140. This is a very low number, especially when compared to those of traditional coins. Bitcoin can be divided into 8 decimal places, and the smallest unit is unofficially called satoshi. This is one hundred millionth of a single Bitcoin or 0.000000001 BTC.
Bitcoin also has some features that make it popular and that causes people to value it. Among others, it is the first global means of payment and the first decentralized digital currency that allows, or at least promises, to build a better future, especially for those without access to the world banking system.
I'm mainly talking about people who live in Third World countries or in countries with super-inflated national currencies. Cryptocurrencies give them the opportunity to easily participate in the global financial system. On the other hand, some people believe that cryptocurrencies represent an opportunity to get rid of centralized institutions, others instead a mere investment opportunity ...
All these elements create the conditions for determining the price on the basis of the supply and demand mechanisms.
But the price can vary very quickly. Let's talk about instability or volatility. The market capitalization of crypto is still quite small compared to other industries