Factors that determine value of crypto and fiat

Fiat and crypto value

Fiat and crypto share both similarities and differences. Both of them serve as payment mode and store-of-value. However, fiat boasts one thing that crypto doesn’t- backed by the government. Now, it can have both pros and cons. But, how is the value of fiat and crypto determined? Well, there are both common and different ways to assess the value of fiat and crypto. However, fiat is more stable than crypto and hence crypto is converted into fiat currency to prevent losses.

The post below offers a brief on the factors that help to determine the value of both fiat and crypto, followed by a guide on how crypto is converted into fiat currency.

How is the value of fiat assessed?

Fiat, unlike commodities like precious metals, does not derive value from the physical worth of fiat money, For example, USD does not derive its value from a $1 bill. Now, there are two major factors that help to determine the value of fiat.

Issuing government

Fiat money is issued by national governments and hence fiat operates in a centralized environment. Unlike crypto, fiat holds legal tender, entrusted by the national government of the country. Thus, the status of the issuing government-  precisely, the strength and stability of the government- play a key role in determining the value of a fiat money. As a result, fiat currencies of leading or first world countries always enjoy higher value in comparison to the fiat currencies of the 2nd and 3rd world nations.

Demand and supply

If there is high demand for fiat money, it would command higher value over the other fiat currencies. For example, higher demand fiat currencies like EUR, USD, CAD, GBP, and so on boasts higher value all over the world in comparison to other fiat currencies like INR.

How is the value of crypto assessed?

Akin to fiat, crypto too doesn’t derive its value from the asset itself. Cryptocurrency is a virtual asset and does not carry a physical form. There are two main factors that help to determine the overall value of a crypto asset.

Demand and supply

Cryptocurrencies that command high demand in the market but come with limited supply, say Bitcoin, boast higher values in the crypto market. If a coin is overbought, it will have higher value. But if a coin is oversold, it would have lesser value.

Use case of the crypto

The use case or real-time functionality of the crypto also plays a major role in determining the value of crypto.  For example, it was predicted that Ethereum would scale up to 400% after the Merge upgrade. It’s because the upgrade has supported the Ethereum chain with additional staking functionality, enhanced the TPS by multiple counts, and has even made the ETH blockchain more eco-friendly than ever. buy bitcoin

You might see meme coins rising in value initially because those were borne out of hype. But, these coins cannot promise long-term value unless they shift to a meaningful use-case, like Shiba Inu has done with its new NFT collection.

How do you convert crypto into fiat?

You might have questions about how crypto is converted into fiat currency. Well, one of the most common ways is to convert through crypto exchanges. These exchanges are backed by inbuilt inverter that helps to automatically convert cryptocurrency into fiat after you put the necessary details. The other option is P2P exchanges. You will find crypto News buyers here who would be ready to provide you with equivalent cash while making a purchase. You can also make the conversion through a crypto ATM. You would just need to provide your crypto wallet address and the machine would provide you the needed cash.

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