Factors Influencing Cryptocurrency Prices

Factors Influencing Cryptocurrency Prices

Cryptocurrency is available to the public for more than a decade now and its popularity is increasing with time.

The number of crypto investors has risen across the globe manifolds in the past few years.

A lot of people are investing in crypto, some making a lot of money and some, suffering losses.

Cryptocurrency is a new currency, and you should be aware of the factors influencing its prices before investing.

So, let us find out which factors play a crucial role in determining the prices of cryptocurrencies.

What is Cryptocurrency?       

It is to your benefit that you should first build a comprehensive knowledge of cryptocurrency before investing in it.

Cryptocurrency can be defined as a digital currency that exists on blockchain technology and is secured by cryptography.

Mostly, cryptocurrencies are mined which is limited to people who use powerful computers to solve complex mathematical problems and create virtual currencies.

In addition, cryptocurrency operates in a decentralized way which means that it is not backed by the government or bank regulations.

Cryptocurrencies, like Bitcoin (BTC), are designed in a way to have a limited supply to control inflation.

You can use cryptocurrency as a medium of exchange to buy goods and services and to use it as a store of value.

Carl Runefelt, alias, The Moon, is a global crypto leader who has invested in more than 350 crypto startups.

He says, “Obviously, gold is also extremely safe. But I would say that Bitcoin is safer because of course, it is online no one can just steal it or hack it. Gold, it is actually a little bit risky to keep it because it is so easy for someone to just break in and steal it. Bitcoin is harder, so in times of uncertainty, I think Bitcoin is going to prove to be very strong.”

Factors Influencing Crypto Prices

What influences the value of cryptocurrency?

This is a question that is often asked by crypto enthusiasts.

The first thing that comes to mind is the market hype. But several other key factors play a crucial role in determining the prices of cryptocurrencies.

Node Count

The node count is among the key factors that influence the price of a cryptocurrency.

It shows the number of active crypto wallets in existence.

This discovers how strong a crypto community is. A stronger community minimizes the chances of potential crisis which increases the number of investors in a cryptocurrency.

In addition, the larger the number of nodes, a crypto network is decentralized and stronger.

Production Cost

The production cost of a cryptocurrency is another key factor determining its price.

Crypto miners use specialized networks to mine a cryptocurrency.

If the mining cost of cryptocurrency increases, its value would also rise.

Miners would not mine a cryptocurrency whose value does not cover its production cost.

Crypto Exchanges

A crypto exchange is a platform where you can trade different cryptocurrencies.

If a cryptocurrency is available on multiple crypto exchanges, the number of people buying it would increase.

So, if you use two or more crypto exchanges to swap a cryptocurrency, you will pay a fee for each swap.

This would raise the investment cost.

Supply

Supply is yet another significant factor that affects the value of cryptocurrency.

A limited supply of a cryptocurrency means a higher price.

For example, the protocols of Bitcoin are designed in a way so that only a limited number of Bitcoins can be traded.

But this is important to control inflation.

The value of a cryptocurrency may decrease as the availability of its coins increases.

Social Media

One key factor that is often discussed among cryptocurrency investors is the crypto hype.

The value of a cryptocurrency can change because of social media hype.

It works both ways, the news can lower or increase the prices of a cryptocurrency.

In addition, influential people in the crypto community on social media impact the prices of cryptocurrencies.

But to make a sound crypto investment, crypto experts recommend market research.

Carl on his YouTube channel, The Moon, emphasized, “To make huge profits from investing in cryptocurrencies, one must carry rigorous market study and notice the factors which affect a particular cryptocurrency.”

Conclusion

Cryptocurrency is relatively a new currency compared to fiat or traditional currency.

It is still believed to be in its early phase and many key factors influence its value. But before investing in cryptocurrency, you should be aware of the above-mentioned aspects of cryptocurrency to make a sound crypto investment.