In this article, we will talk about some of the important factors that have an impact on the market price of cryptocurrencies. Factors related to the crypto market like market beta, trading volume, and volatility significantly determine the price of cryptocurrencies. The process of creating these coins is referred to as mining. Geeks do mining while working on powerful computers. They solve mathematical equations to create virtual currencies like bitcoin. After reading this article, you will understand how a market fluctuates and how to start your trading journey.
Many Exchanges enable you to leverage trade bitcoin, and after making a deposit you will receive a bonus. Well, the bonus you get wholly depends on the amount you deposited. Several factors influence how the price of the cryptocurrency fluctuates and we will elaborate on those factors.
A substantial number of the components that operate the value progress of expected business divisions likewise affect the cost and irregularity of bitcoin, which will amaze most spectators. The major requirement is that the unpredictability of the cryptographic money market is quite higher than that of expected corporate sectors.
What Impacts The Market Price Of Cryptocurrencies?
Its been almost a decade now since the release of cryptocurrencies, but their popularity has mainly increased just in the past couple of years. Nowadays, various people are investing in cryptocurrencies, because the crypto market is flourishing. Even some experts are calling it ‘the future of finance’.
Though cryptocurrencies have a lot of potentials, still the investment is not meant for everyone. That is because the cryptocurrency market is highly volatile and one needs a lot of patience. It is not like the stock market, fluctuations are even high as 45%. Although, many people who invest in cryptocurrencies are not even aware of the working of these fluctuations. This is the reason that many people lose money in the crypto space.
Market Capitalization
It is the most authentic indicator to judge the value of a coin in the market. It is also known as the ‘straightforward’ method to know the actual value of a coin. It has a specific formula and is calculated by multiplying the total number of supply of the coins by the price of each coin
Market Capitalization= Total Regulating Price Of a coin x Value of a coin
| Coin A | Coin B |
| Coins in circulation =3,000 | Coins in circulation =1,000 |
| Price of each coin= 2 | Price of each coin= 3 |
| Market cap =6,000 | Market cap =3,000 |
By looking at the example we can see Coin B is high in price if we look individually, but Coin A takes the lead in terms of market cap value. Through this example, we can easily figure out the true value of cryptocurrency
Thus, investors need to have a deep understanding of how the cryptocurrency market works and what impacts the price of a cryptocurrency. Investors can gain success in the cryptocurrency industry only if they are completely aware of this industry.
Let’s have a look at some of the important factors which have an impact on the market price of cryptocurrencies.
1. Crypto Node Count
The crypto node showcases the number of active wallets existing in the same network. This information can be accessed by searching on Google or checking the currency homepage. But why is a crypto node count significant? Firstly, it displays how strong the community is.
A high crypto node count means a strong community, and a strong community grows the chances of that currency overpowering a potential crisis. Secondly, the more number of nodes also points toward the strength and decentralization of a network, both are essential factors when it comes to crypto.
However, using the node count you can check if the price of the cryptocurrency is fair or not. Look at the currency’s node count and total market capitalization and do a comparison with more famous currencies. The aim is to get an idea about how node count influences price and how cryptos operate.
2. Cost Of Production
The cost of production also has an impact on the cryptocurrency value. Miners using specific hardware or servers, produce new tokens and verify new network transactions. Miners are honored with virtual tokens and a network fee for their efforts.
The miner’s network activity enables decentralized cryptocurrency to keep working. Hence, if mining costs increase the value of cryptocurrency may also increase. Thus, for miners, if the recompenses are not sufficient to cover the expenses and generate profit, spending their resources mining new cryptocurrency tokens is useless.
Therefore, research before committing is vital because the case differs and is not uniform across all cryptocurrencies.
3. Exchanges in Cryptocurrency
In-demand cryptocurrencies like Bitcoin and Ethereum are listed on almost all of the available cryptocurrency exchanges. What many exchanges prefer is to only enlist popular cryptocurrencies due to their demand and ability to attract more customers.
Whereas, if you are looking for crypto projects with relatively lesser market caps, you will only find them on selective exchanges. The tokens being available on selective exchanges means limited public access to them. Though a cryptocurrency gets more exposure if it is listed on more projects.
When the cryptocurrencies were first listed on a big exchange like Binance or Coinbase they went through a remarkable price increase.
4. Competition
The new tokens are launched regularly, resulting in the increase of existing cryptocurrencies. There are meme coins, celebrity coins, soccer coins, and many more which increase competition. Among these newly introduced coins, there are also viable cryptocurrency projects that can surpass a current limitation and build a strong network for users.
5. Regulations By Government
Some governments do not value the cryptocurrency’s decentralized and unregulated character. That’s why find out the methods to control the crypto market. The best way to control crypto is to fix a tax for any fiat money people use to cash out their coins. Consequently, this tax will apply to specific tokens, so people looking forward to cashing out their profits will use a different coin to cash out.
Various countries banned Bitcoin, Ethereum, and some other coins to control the crypto market. Since, if a country with a massive number of crypto users fixes new regulations against cryptocurrency its value will be negatively affected.
Besides, some countries like Japan are engaging with blockchain technology, to develop a national cryptocurrency that will urge more people to use virtual tokens.
6. The Supply And Demand
A factor that sends the price of a particular cryptocurrency whether high or low is its demand and supply. If the demand for cryptocurrency is high and its supply is low the price of that currency will automatically go up. Similarly, if a cryptocurrency has a large supply but the demand is comparatively low, the price will go down.
A point that differentiates cryptocurrencies from other traditional currencies is their finite supply. Fiduciary currencies have no specific limits, and the government can always print more money if needed which results in inflation. Along with time, when the demand for some crypto increases its value also increases.
Each cryptocurrency has a distinct total supply and could range between a few thousand to even billions. Thus, this is something that also depends on various factors that are associated with that currency. However, the formula of demand and supply is still applicable to all cryptocurrencies.
7. News And The Social Media Power
An important factor that largely impacts the market price of cryptocurrencies is the news and social media power. If a cryptocurrency is being portrayed positively and is trending on social media since everyone is talking about it, its price will increase over time.
For example, let’s consider the SafeMoon project, which was not anything remarkable but became a trending topic in the news, and everyone was talking about it on social media. That coin was so over-hyped on social media platforms that it became a hot commodity and everyone started to purchase it.
This does not happen with every cryptocurrency but it showcases that the crypto market is very volatile and that social media is a powerful giant. The good or bad news about cryptocurrency also largely affects its price. So try to keep social media knowledge of those projects in which you have invested. For example, on social media crypto exchanges constantly provide updates about blockchain currency. Moreover, information about different forms of crypto scams is also available.
Conclusion
These are some of the important factors that have an impact on the market price of cryptocurrencies. Other than that, many small factors also influence the price of any particular cryptocurrency. The price varies from project to project but one must have full knowledge of the potential factors that can affect the price.
If you are interested in trading cryptocurrency after reading this article you can be with one of the top exchanges like ByBit. The margin traders can trade Bitcoin and Ethereum with almost up to 100x leverage on ByBit.
Hence, there is no perfect way to predict which factors influence cryptocurrency value. Thus financial experts only advise you to invest money in cryptocurrency if you can afford to lose it. Furthermore, always do as much thorough research as you can before opening your wallet to invest.
Read more: How to buy bitcoin
Read more: Can Crypto Investment be a Part of your Retirement Plan?
Read more: How To Short Bitcoin? Step-By-Step Trading Guide For Shorting Bitcoin
