A cryptocurrency is a decentralized currency, and several factors determine the price of every currency. These factors are not controlled or managed by a single entity or particular body but by every member of the market forces.
These factors range from the basic economic principles of demand and supply to other crypto-specific factors like technology, production, and media. Let’s take a look at some things that determine the price of a cryptocurrency:
Demand and supply
Demand and supply are basic economic factors that affect every type of market, including real estate, stocks, and cryptocurrency. The number of people that want a particular product, in this case, cryptocurrency, is referred to as demand. In contrast, the available quantity of the product in the market represents the supply.
When there is an increase in demand and insufficient supply to meet the demand, the price of the said currency will increase significantly depending on how much the demand is. On the other hand, when there is sufficient supply and little demand for a currency, its price will reduce significantly.
When the supply exceeds the demand for a currency, it is said to be oversold because the coin is usually sold below its actual value. But when demand is more than the supply, the currency is being overbought because it is sold for higher than the actual value.
Pump and dump
The pump and dump scam is a market fraud carried out by a group of people such as coin founders or large holders. They spread false positive information about a particular currency, causing its price to increase significantly so that they can sell cheaply bought currency for a higher price.
Once this happens, large holders dump their coins to cash out, and the price of the currency drops again. The decentralized nature of cryptocurrency makes it challenging to find the people who do these things, but they would have made a significant impact on the market before their scheme was noticed.
Token economics is the study of the behavior of cryptocurrencies in the market. It covers the production, management, distribution, and possible positive impact of the currencies in the market.
This study can be used to determine the price of a cryptocurrency as factors such as how much of the currency is available in the market, how much work was put into the production of said currency, and lots more.
The lesser a currency is available in the market, the higher the price of that currency. As more of it is being distributed, the currency’s price reduces.
For example, if only 15% of an available currency is in circulation, the price will be high depending on the demand for said currency. However, once more of this currency is introduced into the market, the price begins to reduce.
The most crucial aspect of any market is the community, that is, the people who actively carry out transactions. Every market needs an active market to thrive, including cryptocurrency.
The more people actively trading or exchanging a particular currency, the higher the price of the currency. While fewer people that are actively trading a currency reduce the price of the cryptocurrency.
This is why several coin founders do their best to reach a lot of crypto traders and investors to grow their community and get more people actively involved in buying, selling, and exchanging their currencies so that the currency can have a higher market value.
For instance, Bitcoin is one of the most popular currencies in the market and is being traded and exchanged by millions of people, which makes it one of the most expensive currencies in the market.
Social media is the gold of our present generation. It gives users access to lots of information from different parts of the world in real time. It’s not surprising that it makes the list of factors that determine the price of a cryptocurrency.
The media is a tool that is used to get information across to a large number of people within a short timeframe, and many crypto investors utilize social media to get their coins more publicity which increases the demands and eventually the price.
Once the media moves on to something else, the price of said currency might reduce because it is not getting as much attention as it was from the media, which reduces its reach, demand, and price.
Updates and innovations
Just like regular product updates make the product more valuable and even more expensive, the same applies to cryptocurrency. An update is considered an improvement on what was available, making it more practical and costly than the previous one.
With constant innovations and updates to make every new currency better than existing ones, the most innovative tokens will have a larger active community than others. Once an innovative currency is introduced to the market, it strips the value from already existing currencies.
Developers are working hard to build on the limitations of existing currencies and develop innovations that will set their currencies on the radar, ultimately making their currencies more valuable than the already existing ones.
Technology and solutions
The technology used to produce a certain cryptocurrency and the solutions the project will offer society are also essential factors that determine the price of a cryptocurrency.
Powerful computers and other technology are used in the production of cryptocurrencies. Therefore, when valuable technology is used in the production of a currency, people tend to be more attracted to the said currency, which increases the demand and, ultimately, the price of said currency.
Also, when crypto mining projects are embarked on, there are substantial results in our environment, and people are more likely to be interested in projects that offer more solutions or projects whose solutions are more significant than the others.
Marketing strategies and tools
Some developers or investors employ market strategies to boost the demand for their currency which also increases the price. Many common marketing strategies such as advertisements, the use of social marketing, and other technologies like apps and browsers can affect the price of a cryptocurrency.
The use of trading tools such as portfolio or coin price trackers can also determine the price of a currency because they produce real-time information about market trends which causes a large number of people to take action simultaneously, which can alter the price of cryptocurrencies.
This is because these marketing strategies and tools make the currency more accessible to users, increasing the currency’s demand. After all, everybody wants a piece of easily accessible currency, so there’s an increase in price.
We live in an automated era where artificial intelligence is used for almost every aspect of life in every industry, including cryptocurrency. Trading bots can affect the price of a cryptocurrency, particularly by increasing the price.
Trading bots enter the market and create a sense of demand for the currency. This artificial demand is interpreted as increased demand for the currency, leading to an increase in price.
However, traders and investors are advised to ensure that bots are not promoting the currencies they invest in. They can use this by using coin price trackers, especially those that offer real market insights and trading tips.
Authorities and restrictions
Authorities and restrictions are also factors that determine the price of a cryptocurrency. Although the crypto world is decentralized without a central governing body or authority, it is subject to the government of various regions.
For instance, if the government of a certain country imposes a sanction on a particular currency, said the currency will experience a decrease in price depending on the nature of the sanction. Similarly, if restrictions are placed on crypto transactions and activities, the price of currencies will be affected.
The percentage of people affected by the limitations also determines the changes in the market. If a large portion of the market is restricted, demand will be reduced, and the price will be increased, and if a small percentage is affected, the price of currencies may not significantly decline.
Every crypto investor and currency founder strives to make sure that their currency is on top. This brings about constant competition to grow the trading community of a particular currency or to improve on the existing technology of said currency and attract more people.
These changes affect the market and bring about price changes for the currency depending on its performance per time.
We’re yet to understand much about the crypto industry and how the market works. However, listed above are some of the factors that affect the prices of cryptocurrencies per time. As more discoveries are made, this list will probably expand.