What factors influence the price of cryptocurrency? The first thing one can think of is its demand. Similar to any other good or service, the greater the demand, the greater the price; conversely, the lower the demand, the lower the price. Other than that, there are several factors that influence the fluctuations in the price of cryptocurrency.
In this blog, we will take a deeper look at those factors. So, keep reading to find out!
- Node Count
The number of active wallets in a network is represented by the node count. You can find the information on node count quite easily by conducting a Google search or visiting the currency homepage.
Although one may ask, why is the number of nodes important? Well, for starters, it shows the strength of the community. A large number of nodes indicates that the currency has a robust community, and a strong community boosts the currency’s chances of surviving a possible crisis. Another point a larger number of nodes represent is a strong and decentralized network. Both of these things are highly essential when we talk about cryptocurrencies.
Through nodes, you can also check if the cryptocurrency in question is fairly priced or not. Simply compare the currency’s node count and overall market capitalization to that of a more widely used currency.
- Production Cost
Another element that determines cryptocurrency value is the cost of production. Miners create new tokens and validate new network transactions every day using specialized hardware or servers. For their efforts, miners are paid with virtual tokens and a network fee.
The network activity of the miner allows decentralized cryptocurrencies to continue to function. As a result, if mining expenses rise, the value of cryptocurrency may rise as well. So if the rewards aren’t high enough to pay their costs and turn a profit, it is pointless for miners to invest their time and money mining new cryptocurrency tokens. However, this isn’t consistent across all cryptos. So, do your homework before committing.
- Cryptocurrency Exchanges
When a token is available on quite a lot of crypto exchanges, it attracts more individuals to buy and use it. Plus, if you require more than two exchanges to swap a particular cryptocurrency, you will be paying a fee for each swap. This significantly increases your investment cost and also the value of the currency.
With new tokens being issued every day, the number of existing cryptocurrencies continues to grow. There are celebrity coins, soccer team coins, meme coins, and a plethora of other options available. Among these new coins, there are also potential cryptocurrency projects that could overcome a current limitation and develop a large user network.
- Government Regulation
Certain countries dislike the decentralized and unregulated nature of cryptocurrency and are looking for ways to regulate it.
Setting a tax on any fiat money people use to cash out their coins is the simplest method to regulate crypto. However, this tax would only pertain to particular types of tokens. So, anyone who wants to cash out their winnings can simply switch to a different coin.
Several countries have determined that banning Bitcoin, Ethereum, and a few other currencies is the best approach to regulate the crypto industry. Unfortunately, imposing additional regulations against cryptocurrencies in a country with a big number of crypto users will have a negative influence on its price.
Nonetheless, other governments, such as Japan, are experimenting with blockchain technology and are rumored to be working on a national cryptocurrency that will encourage more people to use virtual tokens.
In theory, if the cryptocurrency supply is limited, the price will rise as fewer coins are available for purchase. If just 40% of the coins are circulated and the remaining 60% are reserved, the price may fall as additional coins may become available for purchase.
Existing coins are “burned” by some cryptocurrency projects, as they send them to an unrecoverable location on the blockchain. This allows them to keep a tight grip on the available supply.
- Social Media
The value of cryptocurrency is known to fluctuate as a result of social media. It also works other ways, as news can either drop or raise prices. There’s also the impact of influential members of the crypto community, like Elon Musk. He influenced the value of the DOGE coin on multiple occasions, both intentionally and unintentionally.
Although social media is chaotic, the information there is quite useful. Crypto exchanges, for example, provide regular updates on cryptocurrency or warn users about crypto frauds.
Now that you know of all the factors that influence cryptocurrencies, you are ready to make a well-informed investment.
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