Since the invention of cryptocurrency starting with bitcoin, it has experienced a significant amount of growth. Thus leaving lots of people asking many questions like what stimulates the growth. Hence, there is an increasing interest in knowing the factors affecting the value of cryptocurrency. Considering the high volatility of the market and the explosion of space. While the main initiator(s) Satoshi Nakamoto is still unknown.
Nonetheless, cryptocurrency is a decentralized finance platform. But does this as a factor affect the value of a cryptocurrency?
Ask no further questions as we’ve disclosed the major factor affecting the value of cryptocurrency price. Learning this will teach you to make more informed decisions about choosing it as an investment.
10 Factors Affecting The Value Of Cryptocurrency
#1. Supply and Demand
Demand and supply determine the movement of the value of Cryptocurrency. Therefore, it greatly influences most cryptos. When the demand rises faster than supply, then the price increases. Likewise when the supply exceeds the demand, the prices decrease.
Additionally, demand also increases as a currency gains attention or its utility rises, especially if it turns out as an investment.
#2. Production Cost:
The production of new cryptocurrency tokens follows through a “mining” process. The miners need to use a computer to validate the next block on the blockchain. The more competition involved in mining a certain cryptocurrency, the more difficult it becomes to mine because miners compete to solve a complex math problem to verydate a block.
Therefore, the cost to mine rises as the team requires more powerful equipment such as computers to mine. Thus, as the cost of mining increases, the value of the cryptocurrency increases as well.
Hence, the cost of production is one of the major factors affecting the value of cryptocurrency. Miners won’t mine if the value of the currency they’re mining cannot be enough to compensate for their costs. So, provided they exist a demand to use blockchain, the price will have to increase.
#3. Cryptocurrency Exchanges
Practically any cryptocurrency exchange will list the most outstanding tokens and mainstream cryptocurrencies. Cryptos such as Bitcoin and Ethereum, trade on numerous exchanges. However, you may only find smaller tokens on a few exchanges, thus, this limits investor access.
If some wallet provider aggregate quotes to swap a pair of cryptos across various exchanges, they’ll charge a fee to do it, thus, which increases the cost of investing cost.
However, if you thinly trade cryptocurrency on a small exchange, the amount that the exchange charges may seem too much for some investors.
Therefore, if several exchanges list a cryptocurrency, it will increase the number of investors ready to buy it. Hence also increasing the demand. And remember when demand increases, the price also goes up.
#4. Competition
There exist over 13,000 different kinds of cryptocurrencies, with a constant increase of newly launched ones. While it seems easy for them to launch more, it becomes more difficult to make them viable since they need to grow a network of users for that cryptocurrency.
However, if the crypto has a useful application for the currency on the blockchain, then it can quickly grow its network. Especially if it outperforms a competitor’s limit. While if a new competitor gains momentum (more users), it reduces an existing competitor’s value. Thus, driving down its price while increasing the new crytos value.
#5. Internal Governance
Cryptocurrency networks hardly follow a fixed set of rules. Their developers establish them based on the community they serve. Some enable their holders to have a voice in how they mine or use a token. However, stakeholders need to have a consensus to make any changes to a token’s governance.
Meanwhile, investors usually prefer stable governance, because it also provides more stable pricing. Still yet, the slow process to update software to enhance protocols can limit a crypto value. If an update would unlock value for cryptocurrency holders but expends a long time to complete, it harms the current stakeholders.
Additionally, some cryptocurrencies have ways to burn existing tokens to hinder the circulating supply from growing too large. Or they send it to an unrecoverable address on the blockchain.
#6. Government Regulations
Yes, the government has not gained full access to regulate the crypto sphere because of its decentralized nature. However, some government activities and decisions are one of the strong factors affecting the value of cryptocurrency.
Furthermore, some countries’ governments outrightly ban cryptocurrency which affects the current state of cryptocurrency. Instances of such countries include China, Algeria, Bangladesh, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia. However, some countries outrightly approve of it. Like when the government of El Salvador approves its usage, the crypto space experienced a great rise.
#7. Node Count
Node counts reveal the number of active wallets existing in the same network so you can discover the community’s strength. A high count implies a powerful community and strengthens the chances for that currency to withstand potential crises.
You can search the currency’s home page or Google search to discover the count. When you juxtapose it and its total market capitalization with a popular currency, you can see how node count influences the price of the crypto.
#8. Social Media and News
Social media hype, or when influential people find interest in crypto has a great effect on the value of the coin or token. It can raise or lower the price of the cryptocurrency.
While cryptocurrency exchanges can give information on the blockchain or a currency, you significantly have to check details that may come from other sources. This is because they don’t even need to be correct to influence the currency’s volatility.
#9. Market Cap
Market capitalization or market cap is one of the top factors affecting the value of cryptocurrency. It is one of the most precise indicators of a coin’s/token market value. You can calculate the market cap by multiplying each coin’s price by the total coin supply.
#10. Greed and Fear Index
The Fear and Greed Index is a way to gauge the stock market and even crypto movements. The theory shows that when there is excess fear in the market from investors, the value of cryptos decreases. While when the investors becomes excessively greedy prices tend to have the opposite effect.
The crypto fear and greed index provides a simple overview of the current sentiment of the Bitcoin/crypto market at a glance.
Frequently Asked Questions About How To Buy Binance Coin
Is Cryptocurrency a Good Investment?
Cryptocurrency has proven very volatile in its short time as an investment asset. It’s best to consult a finance and investment professional about your specific situation before investing in any cryptocurrency.
What Is Cryptocurrency Current Stock Price?
There is no cryptocurrency stock, but you can purchase shares from companies that invest in cryptocurrency or blockchain technology.
Is Cryptocurrency Illegal?
Some cryptocurrencies like Bitcoin are recognized as a form of currency in many countries. However, only a few countries consider them as legal tender. Outright bans exist in China, Bangladesh, Algeria, Iraq, Morocco, Nepal, Egypt, Qatar, and Tunisia.
Conclusion
There exist multiple factors affecting the value of cryptocurrency. However, none of them is error-free. Therefore, investors must do proper market research and consider all the risks before they invest.