What defines the price of cryptocurrency? List of factors.

Crypto Nov 28, 2019

The primary reason for Cryptocurrency popularity has been the price. The price is determined by various factors which we are going to discuss today.

The price of cryptocurrency goes up and down and it all depends on the demand and supply. Thanks to the trends and factors such as human sentiments that also act as a major player when it comes to the price changes. There is an extensive article on the human sentiments that are responsible for the price changes and how you can understand them and avoid  them.

To first understand the price let us understand that there can be any number of features that are responsible for the price change. These are the points that form the basics of the determination of the price and some that affect the price after it.

Limited supply:

Most of the cryptocurrencies have limited supply. With growth adoption the demand increases. This increase in demand results in an increase in price. The increase in demand and price are proportional to each other. Therefore one leads to the other.

Energy:

The energy required to maintain the blockchain in included in the price of the coins. The more number of people join the blockchain the maintenance increases as the energy consumption to maintain the blockchain has increased.

Mining:

As slowly more and more coins are being discovered the mining of coins is becoming difficult. The limited supply of coins have made mining even more difficult than before. Mining today requires a lot more energy than it needed a few years back. The limited number of coins and the growth in supply is one of the reasons for the determination of the price of the coin.

Usage:

Cryptocurrency is still a new concept when compared to the other existing methods of payment. Therefore it is quite new for retailers too to accept cryptocurrency as a payment option. Even after accepting cryptocurrency as an alternate payment option, not necessarily all cryptocurrencies are accepted. Only the most popular once or the ones having a high position in the market cap charts have higher chances of acceptance as a payment option.

Public perception:

This point is quite similar to one of the points in the article that states human sentiments for the change in the price of currencies. The public perception of cryptocurrency is one of the main factors on which the price of cryptocurrency is based. Now when we come to see on a larger picture, the public perception shapes the demand of the currency. Therefore it is one of the main reasons for determining the price.

Bitcoin:

Bitcoin is undoubtedly the most famous cryptocurrency amongst all. The price of bitcoin is hugely responsible for shaping the market. Any change in the price of the other currencies result in the change of the whole cryptomarket including all the other coins.

Huge investors:

Investors who own huge chunks of the market can influence the market hugely. Their each move can be the reason for some percent of the movement of the crypto market. The market being so small can be easily manipulated by these large investors. These kinds of fraud cases are known as whale frauds which can be taken care of if payed attention.

Scams:

The number of scams are not less in any market. But cryptocurrency being a new and a smaller market has the effect quite easily. The investors who have fallen into project scams and frauds hesitate to invest in the currencies further. This has a negative impact on the market.

Trust in traditional systems:

For years the traditional systems such as banks and all have ruled the market. It has been very difficult for crypto to make its place. Again increase and decrease in trust on these traditional systems have a great impact on the price of the cryptocurrencies.

Forks:

Crypto forks result in splitting of currencies into two parts, usually one remains and older version and other new. This usually happens when an existing code is changed. One example is that of bitcoin and ethereum. This again discourages investors to invest in cryptocurrencies.

Excess coins:

Excessive amount of coins released every month can a major reason for determining the prices. The issue is that most of them are released without proper utility. This results in market dilution making it harder for alternative coins to gain ground.

The legal moves from the government regarding rules and regulation and often ban notices can be a major factor. These can majorly affect the adoption and utility.

Media:

The last point has to be the reason that is most visible from the outside world. Any platform that frames any news in a certain way can be a huge reason for the change of prices. The positive and negative framing of any coin is a major and the most visible reason for the fall or rise of any product.

These are some points that are very visible and also are short term reasons. When looking at a long term reasons like reliability of the currency, its investment and growth value are more responsible.

We can safely say that currency the price of cryptos are quite illiquid making the price fluctuates a lot. Technical challenges, regulations, reputational issues and other factors make the supply and demand unpredictable.