The value of a cryptocurrency is usually derived from, among other variables, its usefulness, use case and, eventually, demand.
Understanding this will help you make good choices when it comes to selecting the cryptocurrency coins in which you trade and invest.
Utility
If you can use it for something, a token has utility. To add value, utility helps.
If users derive a gain by using a token, the demand for the token increases. If the token has a function, to make use of the utility, individuals may want to purchase it.
Use case
A cryptocurrency's worth is partly derived from its perceived use case.
Tell yourself, as well:
Will the token have a case for real world use? Is it valuable? Will the case for this usage make sense?
It is usually more valuable if it does, than a token that does not.
Partnerships
For a lot of crypto ventures, collaborations are a very prevalent talking point. Partnerships with large or well-known corporations are usually considered to add value and credibility to a cryptocurrency.
Not all partnerships, however, are the same. Some are more substantial than others. Some campaigns have also lied about relationships in the past or twisted the facts to raise attention.
Look for clarification from both sides when a partnership is announced and dive into the details of the business relationship.
Incentives
Incentives are close to comfort. There are items that provide a justification for individuals to keep a coin.
Some coins have master nodes, where you can earn incentives if you keep a certain threshold and run a node.
If you keep them, other coins create a second token, effectively providing a passive income from airdrops.
Such rewards will make a coin attractive to have, which increases the demand.
Liquidity
This makes it easier to buy and sell at a fair price if a token has a high trading volume and a tight spread.
If a token is easier to obtain, it can be purchased at any given time by more people. This can be a factor in how a token is available.
Market cap and supply
A lot of traders will buy a token for future potential growth and value appreciation.
Future creation is somewhat contingent on the coin's market cap. Compared to a coin with a USD 10 billion market cap, it is even more likely that a coin with a USD 1 million market cap would be 10x in value. But no assurances remain.
However, as a general rule, when searching for potential investments, it is necessary to factor in the market cap and not the price per coin.
The lack of supply that raises value is one important thing to remember. In the case of Bitcoin, for instance, it is estimated that 4 million BTCs are forever lost, around 20 percent of the total supply. This presumed loss is factored into the valuation of Bitcoin, so if more Bitcoin were to be lost unexpectedly, the price might rise since the overall supply will have been decreased in essence.
Team
Who is the project behind? It's all well and good to have big ambitions for a project, but are there trustworthy individuals in position to get the job done?
With a good track record, you want to see a team of business experts.
Target market
Every crypto project, some larger than others, has a target market. If a project has a strong use case but is incredibly niche, obscure or unattractive, it will struggle with investors to gain traction.
If a project's target market is wide, a higher valuation might be available for the cryptocurrency.
When thinking about what makes cryptocurrencies valuable, there are only some variables to remember. This article is not financial advice, of course, but it should provide you with some things to think about. Prior to investing in any coin, please do your due diligence.