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Crypto in plain English

One minute per topic – easy to understand and perfect for beginners.

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April 25, 2022

Who or what sets the price for crypto currencies

Welcome to the cryptohunt jam where we spend one minute a day to explain crypto. In plain english.

Have you ever asked yourself how Bitcoin prices get set? How is it possible that they follow seemingly random patterns - up and down and impossible to predict? Is it a conversation between a few secretive people, smoking cigars behind closed doors? Is it all random? 

Of course not 😃, so today, let’s talk about why crypto has value in the first place.

But before we dive in, let’s look at the bigger picture. How does anything get value at all? That only happens through trust we have in those things to be freely exchangeable. Take a dollar bill for example, the paper alone is not worth the money it represents, yet we believe in its value. And that is, because we can take that bill into any store and can exchange it for something else.

Let’s take that concept one step further: Stocks in publicly traded companies represent a percentage of ownership. Yet, if you divided only the measurable value of a company – like real estate, money in the bank, products on shelves – between all shareholders, that wouldn’t come even close to actual stock prices. What explains the difference is our belief in the future value of those shares – if I believe Apple will continue to grow in the future, I am willing to pay more today.

Crypto works the same way. Investors believe in its future potential. And they believe in it so much that they are excited about the prospects of replacing the entire financial system. And that’s why cryptocurrencies like Bitcoin are worth a lot of money, yet they don’t actually do much yet. 

And next time, we’ll talk about how crypto markets work, the mechanisms that set prices using supply and demand so that we don’t need those people smoking cigars behind closed doors.

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