When a cryptocurrency or utility token is tied to a specific service or product, its value can increase due to the principles of supply and demand, even if the price of the product remains stable in US dollars. Here’s a breakdown of how this works:
Demand for the Coin is Driven by Product Usage
• A utility token or cryptocurrency might be the only way to purchase or access a certain product or service.
• As the product or service becomes more popular, more people need the token to access it. This creates a growing demand for the coin itself.
Example:
Imagine a coin that can only be used to buy coffee, and 1 coin = 1 kg of coffee. If the coffee remains priced at $10/kg in US dollars but many more people want coffee, they’ll need more of this special coin to buy it. As demand for coffee grows, so does the demand for the coin.
Fixed or Limited Supply of the Coin
• Cryptocurrencies often have a fixed supply or a controlled rate of issuance, meaning the total number of coins is limited.
• When more people want a limited resource, its value increases. This scarcity effect pushes up the price.
Example:
If there are only 1 million coffee coins in existence, and now 10 million people want coffee, the coin becomes more valuable because more people need it to buy the same amount of coffee.
Increased Coin Value Due to Demand
• When demand for the coin rises but the supply is limited, the market price of the coin goes up.
• People are willing to pay more in dollars to get the coin, which increases the coin’s value in terms of USD or other fiat currencies.
In the case of the coffee example, even though coffee remains $10 per kg, if the coffee coin becomes highly demanded, its price could rise to $20, $30, or more per coin because of its utility. Now, people might need $20 worth of coins to buy that same $10 worth of coffee.
Speculation Further Drives Value
• Investors may see the coin’s rising demand and buy it purely for investment, not necessarily to use the service. They expect the value to keep rising as more people need the coin for the product.
• This speculation adds another layer of demand and can further inflate the coin’s value.
Stable Product Price, Increasing Coin Value
• The key is that even though the price of the product (e.g., coffee) remains stable in traditional currency (USD), the demand for the coin pushes its value up.
• More people wanting the product = more demand for the coin = higher value of the coin, even though the product’s price in US dollars remains unchanged.
Conclusion
The value of a utility token or cryptocurrency tied to a specific product can rise due to the following factors:
- Increased demand for the product, which drives demand for the coin.
- Limited or fixed supply of the coin, leading to scarcity.
- Speculative interest, where investors buy the coin expecting further price appreciation.
This is a common dynamic seen in many cryptocurrency ecosystems, where tokens serve as a gateway to a product or service, and their value is driven by both usage (utility) and market speculation.
