Factors that Affect the Value of Cryptocurrency
Now, you must have a question, 'Is it really important to know the factors that affect the value of cryptocurrency?' Well, the answer is yes. Knowing a few of the crucial factors that impact the price of cryptocurrency is helpful. This way you can easily clarify what's going on in the digital currency space.
The majority of people these days tend to show a high interest in cryptocurrency. So, what makes it so important. The hype is because of the changing value and the returns it gives. All the time, we are being emphasized on the highs and lows of the value of such digital coins. You are constantly being fed by the news online related to virtual currencies. What's important here is how you take your daily cryptocurrency news. Irrespective of the medium you choose to stay updated about cryptocurrency, you need to have proper knowledge about the factors that influence its value.
It is a well-known fact that Cryptocurrency is a buzzword and starting from individuals to investors are going ga-ga over it in terms of investment and returns across the global market. Everyone is aware of cryptocurrencies being highly volatile. The news feed and articles focusing on the crypto-markets highs and lows reveal it all. In this article, we are going to cover how and where cryptocurrencies get their value. Stay tuned till the end to be familiar with the major factors affecting the value of cryptocurrency.
Valuation of Cryptocurrency
Cryptocurrency's value can be discerned based on the scale of the community, its popularity among the users, the shortage of the coin, and the coin's profitability. What's important to keep in mind about crypto is as follows. The majority of the digital coins in the market are being provisioned by private blockchain-related firms. Take the nation India for instance; a notable share of the value of cryptocurrency in India lives in and originates from the adjudged value and feasibility of the projects.
Supply Vs Demand
Similar to any other product or coin, the value of cryptocurrencies depends largely on supply and demand. With the surge in demand and decrease in supply, the price of a cryptocurrency also tends to surge in the market. Having said that, if the supply is high but demand is low, the value of the cryptocurrency will automatically fall. The exigency of a cryptocurrency is linked to factors influencing its popularity. In the same way, the supply of a cryptocurrency is associated with the factors affecting its production.
The Coin's Adequacy
Coin's adequacy is another major factor that affects the value. In the case of cryptocurrency, if there is an increase in the value of a cryptocurrency, its utility will also increase simultaneously. Blockchain technology - the decentralized digital balance sheet forms the pillar of cryptocurrency. This blockchain technology speaks for the decentralized nature of the coin. Primarily, you must focus on making cryptocurrency workable in the blockchain context. Only then you can think of increasing the value of the cryptocurrency market.
For example, Ethereum – is a popular cryptocurrency in the market. Ethereum platforms are not usable without Ether. Ether is a cryptocurrency explicitly designed for use with the Ethereum blockchain. Ether is always tied up with Ethereum's transactions. Consequently, the price of Ethereum and the value of the cryptocurrency market is affected directly by the increase or decrease in demand for its platform services. Gradually, the value of cryptocurrency can be impacted by several other factors. Some of them are dividend payments, trading methods within the blockchain, voting integrities, etc.
Costs of Production
One of the most important factors determining the cryptocurrency's worth is the costs of production. By cost of production, we mean the opportunity cost and direct cost required to create bitcoins. You must be aware of the fact that the cost required to produce bitcoins is really expensive. Mining bitcoin requires high-powered computer gear. Bitcoin mining is the only way via which the cryptocurrency holder can be safe irrespective of the fact that bitcoin mining requires a lot of energy. You must have a question, why is it so? It is because governments of major giant nations are not in a mood to shut down the bitcoin blockchain so early.
Obsession with Bitcoin
Yes, we agree with the fact that Bitcoin's ascendancy is no longer as strong as it used to be once. Yet, BTC stands to be the most distinguished cryptocurrency significantly. Because BTC's are prominent crypto in the market, the price of all cryptocurrencies is influenced. Cryptocurrencies' worth is decided by the bitcoin's good or worse. So, you must keep an eye on the regularly updated price of Bitcoin, whether or not you wish to trade Bitcoin directly.
Latest Regulations
In the past few years, the cryptocurrency market witnessed many new regulations. Some of these regulations were directly associated with crypto while others were indirect. One must note that the regulations put on crypto do influence its price. For example, regulations that cut back the freedom to crypto trade or cryptocurrencies mining have led to a sudden price drop. In the same way, any news related to the ban of cryptocurrencies in a nation tends to affect the cryptocurrency's value adversely.
Distinctive Utility
Today, there are innumerable cryptocurrencies out there in the global market. Some of these cryptocurrencies have little or no value while others are high value. The ones with low value are so because these cryptocurrencies do not have anything distinctive to be represented in the table. Moreover, such cryptocurrencies are 'knock-offs' of other popular cryptocurrencies. For instance, Bitcoin. Crypto with unique utility will only be able to set itself apart and only such crypto's price will stagnate or gradually deteriorate.
Mass Promotion
The value of a currency can rise provided it has been adopted by the masses. Mass promotion stands as a major factor influencing the worth of a cryptocurrency. Owing to the limited number of cryptocurrencies units available, its demand automatically increases. An increase in demand means an increase in its prices. Adversely, if cryptocurrencies get mass acceptance as a medium of exchange in transactions, the demand will surge more and more. The prices in this case will tend to rise beyond limits.
Increasing Node count
Another standard influencer of cryptocurrency value is node count. By Node count we mean the calculation of the number of active wallets on the blockchain network. This number is easily available on the internet or the homepage of a particular currency. The higher the number of nodes, the stronger is the community.
Examining whether or not the cryptocurrency is legitimately priced, you can search for the node count and the total market cap of the cryptocurrency online. After searching the node count, you have to establish a comparison between the same parameters of other cryptocurrencies. This way you will come to know whether or not a particular cryptocurrency is overbought.
News & Current Affairs
News about current affairs is also a major factor influencing the value of cryptocurrency. A piece of news that is both popular and negative related to cryptocurrencies or hacks of cryptocurrency exchanges can lead to blunders. In such a case, crypto holders tend to panic which ultimately results in the downfall in crypto prices across the board. In reverse, news about instability or economic uncertainty tends to add popularity to cryptocurrencies. This popularity tends to increase the price of digital currency. So, you can see how news about current affairs affects the valuation of digital currency.
The Takeaway
Now that you have reached the end of the article, you must be well aware that the price of bitcoins and other cryptocurrencies fluctuates wildly. However, as long as IT firms and influential celebrities continue to show interest in blockchain technology and digital ledgers, the value of cryptocurrency is certain to grow higher.
All in all, you just have to remember the above-mentioned factors that can affect the price of cryptocurrencies. Well, there are yet other dominant factors that decide the worth of the crypto. Hence, at times it may not be possible to identify why the price rises or falls, or predict which factor will influence crypto's price in the coming era.