What Influences The Price Of Cryptocurrency? – Prime Factors
Cryptocurrency is a volatile market. There are a lot of things that can influence how cryptocurrency is priced. If you want to know what influences the price of cryptocurrency, you're in for a treat.
As you may know, cryptocurrencies don't have standard or fixed exchange rates. They come in a variety of ranges. Some days it will be high, and there will be days to drop. Learning what influences cryptocurrency's price might be your next best step to achieve a good outcome when investing in the bitcoin industry.
What Determines the Price of a Single Bitcoin, Ethereum, or Other Cryptocurrency?
Bitcoin was developed way back in 2009 by Satoshi Nakamoto, a name given to its creators. When transactions are made, it is recorded in the blockchain. By then, the transaction history is being shown through this to prove ownership.
However, buying bitcoin, Ethereum, and other cryptocurrencies is different from buying bonds or stock because cryptocurrency is not a corporation. Therefore, there is no information or corporate balance sheets to show for. While investing in traditional currencies is backed by a government or a central bank, bitcoin is not. That's why many factors, such as inflation rates, monetary policies, and other economic growth measurements, don't affect bitcoin's value. On the contrary, bitcoin's price is influenced by the following factors:
- Internal governance
- Numerous competing cryptocurrencies
- Trade exchanges
- The supply and demand of cryptocurrencies
- The entire cost of producing a single bitcoin through the process of mining
- Rewards are given to bitcoin miners for validating businesses to the blockchain
- Governing regulation upon its sale
Factors on What Influences the Price of Cryptocurrency
Different cryptocurrencies work on the same principle. However, when it comes to cryptocurrencies, fluctuations and volatility is the name of the game. If you want to know what influences the price of cryptocurrency, here are some of the factors:
Supply and Demand
By far, out of all the factors, the supply and demand greatly affect the value of cryptocurrency. If the demand is high, but the supply is low, then the price goes up and vice versa. So, if the demand is significantly low, the price's certainty to go down is imminent.
Unlike traditional currencies, cryptocurrency supply is somewhat limited. Moreover, and over the years, the decline is gradual. By this, the demand for possessions may exceed the available amount.
Plus, other cryptocurrencies vary greatly. And by this, it is also influenced by many factors and a multitude of reasons, factors that differentiate a type of cryptocurrency from the others. Supply and demand are among the biggest factors influencing the price of cryptocurrency.
Cost of Mining or Extraction
Cryptocurrencies like Ethereum and Bitcoin didn't come from anywhere. We call "miners" who mine these cryptocurrencies with special equipment called excavators. This process becomes difficult if the cost of a single extraction of cryptocurrency increases. And by this, the price of cryptocurrency is greatly affected. When miners need a substantial amount of money to extract a single bitcoin or Ethereum, the price is most likely to go up.
Rules and Regulations
Although this greatly varies from countries and government, there are different rules and regulations imposed by national authorities for cryptocurrencies. There are some cases where it has positive feedback, and others leave something to be desired.
If national authorities impose strict rules and regulations for these cryptocurrencies, then the demand for cryptocurrency will surely decline. On the other hand, if a government or a country is accommodating to the cryptocurrency industry, they will be the instant source for strong increases.
Media plays a pivotal role in how people perceive cryptocurrencies. However, it boils down to how they play their cards well. In some cases, it gives positive feedback for cryptocurrencies to work with. On the other hand, there are also cases wherein they aren't helping the crypto industry blossom.
Simply put, the price of cryptocurrency is greatly affected by how the media writes about it. And this means when the media writes good news about the crypto industry, it will blossom. But if they write negative issues, then the price of crypto greatly falls. When the media writes negative things about crypto, investors are more likely to escape than investing and will result in the crypto industry's rapid downfall.
Of course, as mentioned earlier, media can also be a good model for blossoming the crypto industry but not to the point of exaggeration. Sometimes, the media needs to educate people about the crypto industry rather than writing superfluous and out of this world statements regarding bitcoin and other cryptocurrencies. As a result, people are sure to be more accommodating rather than speculating.
While Ethereum and Bitcoin are among the most popular cryptocurrencies, there are a hundred types of tokens waiting to be recognized. Still, bitcoin is on top of the echelon regarding cryptocurrency powerhouse, but Ethereum, Litecoin, XRP, bitcoin cash, and other competitors are slowly gaining traction. Furthermore, other initial coin offerings are on the horizon due to how easy it is to pass through these barriers.
Although the abundance of competition is a welcoming sign for investors as it keeps cryptocurrency prices at a minimum, bitcoin has the edge because of how visible it is to the people making it the most powerful cryptocurrency over its competitors. Still, one of the bigger factors what influences the price of cryptocurrency is competition.
Learning what influences the price of cryptocurrency will give you a better idea of when and not to invest in cryptocurrencies. For now, the industry of cryptocurrencies is as volatile as it gets. Be sure to have all the proper knowledge if you want to invest and deal with the world of cryptocurrencies.
There are still many factors to consider regarding what influences cryptocurrency prices. But if you play your cards well, your investments should be safe as long as you make the right decisions. Learn more about cryptocurrency here!
UPDATED April 1, 2021
By: Paulette Dane
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