BTCWires– Cryptocurrencies such as Bitcoin, Etherum, Litecoin and Verge have grown to a very unexpected stature in very few years. Many investors are interested in investing in cryptocurrency, but there are significant risks involved with this related to its price.
There are some major factors that drive the price of cryptocurrencies.
- Limited supply and the supply-demand gap
- The energy put in in the form of electricity to secure the Blockchain
- Blockchain difficulty level
- The utility of the currency, and how easy it is to use and store
- Perceptions of its value by the public
- Market dilution
- Confidence in traditional systems
- Legal/Governmental issues
Supply/Demand is a simple economic factor that affects the price of many things. Supply and demand is probably the most important factor but it’s also the easiest to understand. Simply put, there is a limited amount of units for most crypto coins and so if supply is fixed and demand keeps rising (as it is with BTC and others), the price rises. Therefore, we want mass adoption of the coins we are investing in, as with more people trying to buy, the price goes up.
This has an impact on the price, as it takes a certain amount of energy on average to ‘mine’ one Bitcoin. This goes up as difficulty increases. There are claims that the Bitcoin blockchain requires the power of a small country to keep it running. The more effort put into securing the blockchain, the safer it is (which is good), and this should also mean it has more users on the platform.
We believe that any Ethereum token gets a huge boost in this category as the coins can easily be stored within an Ethereum wallet (MEW, parity, etc) and are all concentrated in one place. Users have chosen not to buy multiple coins since they’d need yet another wallet on their computer (and another private key) just to hold the coin. The ability to spend a coin to obtain goods and services will surely be more important in the future as there are few coins that can be used in such a way currently.
Some of the factors are divided into two phases:
- Internal Factors
- External Factors
- Cryptocurrency Traders: The highly active crypto traders influence the rise and fall in cryptocurrency rates. It is known that the higher digital currency capitalization gets, major traders have a less significant influence on price and vice versa. Traders, the most active ones, in particular, affect pricing. Bitcoin typically illustrates the case of highly capitalized cryptocurrency.
- Crossed Influence of Different Crypto Prices: Simply put, when the price of Bitcoin goes up, the price of altcoins drops in fiat value, and cheapens further in relation to BTC. This happens because, with BTC price growth, altcoins’ fund is pushed to Bitcoin.
- Mass Media & Global Economic News: Positive or negative evaluations and reviews of cryptocurrencies also influence price rising or falling, especially if these assessments are made by political and economic authorities. Directly, or indirectly bitcoin-related news do not exercise any significant influence on a cryptocurrency rate. However, it all depends on the capitalization level of that or that one crypto.
- Political Events: Political events have also been known to influence bitcoin and altcoins’ prices. A perfect case study would be the UK Brexit issue. Supporters of Brexit having won by referendum caused an increase in bitcoin demand, and as explained earlier, an increase in demand for an asset causes a rise in the market price. Political events can also maximize the demand for bitcoin, and other cryptos as well.
- Future Blockchain Collaborations: Blockchain technology remains relatively new in the financial technology circle. With the collaboration and education of Blockchain, there is the experience of an increase in adoption of cryptocurrency and technology. And this is causing a rise in effect and demand of cryptocurrency values.