Why Do People Buy Cryptocurrency?

There are many reasons why people buy cryptocurrencies. Some buy to exchange for goods and services, while others use it as an investment vehicle.

Speculation

One of the most common reasons that people buy cryptocurrency is that they expect it will increase in value over time. They use cryptocurrency as an investment vehicle, seeing its potential as an asset that may appreciate in the future. Buying cryptocurrency has a relatively low barrier to entry, making it more accessible to the average investor when compared to other asset classes.

As one of the most volatile yet best performing asset classes of the past decade, cryptocurrency has also become a speculative trading opportunity for both novice and experienced traders.

Worryingly, many newcomers—who often have no experience investing or trading—enter this space and spend little time researching or analysing the market before they start speculating. This ability to attract inexperienced investors is a contributing factor to the cryptocurrency market’s relatively high volatility.

Transaction (Buying Goods & Services)

Others see cryptocurrency as a method for buying goods or services. They do so for several reasons, such as:

• They value privacy and wish to transact in a censorship-resistant way.
• They are displeased with the existing financial system, middlemen and high international transaction fees.
• The goods or services they are buying are illegal or taboo.
• Their other options of transacting are perceived to be less stable than the cryptocurrencies they are using.
• The services they are looking to acquire are only available on blockchain-based solutions.

A growing number of businesses are accepting cryptocurrency payments. Even large companies such as Microsoft, AT&T and Twitch accept payments in bitcoin. More and more online payment gateways are facilitating cryptocurrency transactions these days, enabling most online merchants to accept cryptocurrency as a payment option.

Interest Earning

Some people buy cryptocurrencies so they can store them with a company or organisation for the purpose of generating and earning interest. Similarly to how your bank may pay interest for you to keep money in a savings account, in the crypto space there are companies that may offer to pay you interest for depositing your cryptocurrencies with them.

Just like a bank, these companies promise a fixed rate of return for depositors to keep their cryptocurrencies stored on their platforms. Typically interest returns for cryptocurrency deposits are substantially higher than what traditional banks offer their customers, but this is also accompanied by far higher levels of risk.

If you’re considering buying cryptocurrency for the purpose of earning interest by depositing it with a company, organisation or platform—be sure to take the time to research your options carefully and always remember “if it sounds too good to be true, it most likely is.”

Network Governance 

As decentralised protocols are evolving and becoming more prominent, so is the demand for establishing systems of governance to manage the future direction, changes and developments of these protocols. Many of these protocols issue governance tokens, entitling token holders to voting rights over the network. The more tokens you hold, the more voting power you get.

Many people who buy governance tokens often do so for speculative purposes. That is, they expect that future demand for governance will increase, leading to an increase in the token’s value. Other buyers of governance tokens do so with the intent to participate in activity in the network and, as such, have a vested interest in its future.