Uncommon Factors That Drive a Cryptocurrency's Price

Internal Factors

Hash rates

Hash rates are figures used to map the computation power available on a given blockchain network via mining. They are the indicators used to assess the health of a given blockchain network. A hash rate is an integral facet of cryptos and the blockchain system that serves as the backbone of any cryptocurrency. Hashing enables the blockchain network to run and validate data stored on the distributed ledgers of the crypto. Thus, while being an integral part of the network, hashing is often regarded as a maintenance aspect of blockchain networks. The networks’ hash rate is subject to fluctuations that stabilize and have minimal effects in the long term.

However, this feature has in the recent past showcased its influence on the price of crypto. In the case of ethereum, the network’s hash rate decreased dramatically. This lowered the network's computing power like never before leading to a backlog of transactions. As a result of the low hash rate, the network’s gas fees increased, heightening transaction costs. The domino effect continued with ethereum prices also taking a plunge in an incident like never before.

Rule Changes

In the world of cryptos, Decentralized Autonomous Organizations (DAOs) are an integral management option. The term refers to entities based on a given crypto community. The DAOs work to make decisions and enforce some rules on the blockchain network. The DAOs can also introduce rule changes to the network through an extensive process. In normal cases, rule changes made by DAOs rarely affect the operation of the network However, in some cases, the changes made to rules result in price fluctuations. Such rule changes are often infrequent but very impactful when they occur.

Political Factors

Restrictions

In this case, restrictions refer to outright bans such as those directed at cryptocurrencies and ICOs. Bans are typically rare events that showcase strong opposition to a given subject or sector. In rare incidents, some governments around the world have taken steps to completely ban cryptos. These governments completely restrict citizens from owning, trading, and mining cryptos within the country’s jurisdiction. As a result of their sudden and obtuse nature, bans lead to negative implications for the crypto economy, which makes them one of the most important factors driving a cryptocurrency's price.

As was evident during China’s crackdown on crypto, the global crypto economy suffered great losses. The choice to ban cryptos erased a significant portion of the world’s crypto economy in an instant. This ban had long-term implications that negatively impacted crypto prices and the economy at large. This ban has remained a marquee event in the history of cryptos. The uncommon government action influenced crypto prices in ways that have remained significant and unparalleled to date.

Legalization

In the current world, crypto uptake has grown significantly. As more people use and invest in cryptocurrencies, cryptos have become more mainstream. With the combination of cryptos’ inherent features and the steady rise in use, bitcoin became legalized. This legalization process converted the crypto into a legal tender for use in countries as first seen in El Salvador. This move to legalize bitcoin served as a precedent for many others where the crypto remains a virtual asset.

Due to the legalization action, bitcoin prices have shifted to match the economic situation. As more users are added to the platform, price changes have also followed suit. Given that only one other country has legalized bitcoin, the likelihood of such a shift remains low. The turbulent economy has resulted in many countries waiting out to better understand the move’s economic implications.

Author’s Take

With the advent of bitcoin, many other cryptos followed suit to expand the revolution that is the digital economy. Cryptocurrencies have taken up a large share of the market with several common and uncommon factors determining a cryptocurrency's price. Internal factors such as rule changes and political factors have collectively worked to alter crypto prices over the last few years. However, with the changing global economy, some of the effects of the influences may grow tenfold. Some political factors such as legalization and restrictions may increase, influencing crypto prices. Given the uncertainty surrounding the market, these changes may recur often and cause even bigger shifts in cryptocurrency prices across the market.