In general, cryptocurrencies and blockchain have certain features such as transparency, encryption, safe contracts, built-in trust protocol, etc. that are quite favorable which can increase efficiency, reduce layered costs, etc.
That being said, there are some things that should be understood about cryptocurrencies: 1. Mining cryptos is extremely energy intensive – this limits the expansion of cryptos, creating an advantage for incumbents, 2. The current energy grid lacks the efficiency to handle such a load which is why renewables and energy efficiency are really important because they tie into the success of cryptocurrencies, 3. The current craze for “cryptos” is similar to the “.com” craze, 4. Some of the fund flows into cryptocurrencies are due to “risk-off” sentiment while also serving as safe-havens from governments, 5. The government does not particularly like cryptocurrencies, to be fair, this is partially due to some of the ICO scams, limited regulatory oversight, etc., but also due to the fact that it is a threat as it is not controlled by the government, and 6. The value of cryptos is tied to conversion/expansion/transaction of crypto payments, investment value, investment value perception, safe-haven demand, distrust in fiat currencies, and speculation – all of which I would like to expand upon further.
For simplicity, cryptocurrency conversion and adoption is faster in the technology sector, certain aspects of the financial sector, mobile payment systems, apps, digitial platforms, and societies benefitting from a leapfrog effect. Conversely, cryptocurrency conversion and adoption is slower in areas with entrenched POS systems and/or dominated by cash payments still. Ultimately, as conversion increases, so does the underlying value. However, layered on top of the conversion value are investment value, investment value perception, safe-haven demand, distrust in fiat currencies, and speculation.
At a minimum, the base value of cryptocurrencies is the conversion value. As this increases, it leads to investment inflows which further increase the value via positive reinforcing factors. Also, if investment value increases, it improves perception which also leads to increased conversion and adoption. These dynamics are interchangeable and provide a minimum floor value. Next, safe-haven and lack of trust in fiat currencies can then be layered on top of the conversion/adoption, investment value/perception cryptocurrency value. Collectively, these are fairly stable and less volatile values.
However, when the bulk of cryptocurrency value is merely speculative and to make profits from trading, the value is very volatile, unsustainable, and will not succeed. Pay attention to cryptocurrencies that increase in value but conversion and adoption are stagnant or declining as that is a clear sign it is highly speculative and not supported by any fundamentals.