Major Factors Affecting Price of BTC
2020 was started with a blast for cryptocurrencies. Initially, the price rocketed in the month of January, then they dripped down dramatically in the March followed by the iconic halving event in the month of May and finally, we noticed their all-time high prices.
What drives the price of cryptocurrencies? Like any other asset, the price fluctuation of cryptocurrency depends on multiple factors. In this article, let us try to find out a few of the major factors that affect the value of cryptocurrency.
Major Factors Affecting The Value Of Cryptocurrency
Cryptocurrency is a relatively new asset for investment as compared to traditional stock markets. But like the traditional markets, it experiences the fluctuations even when one or other associated factors changes for the short term.
Let us list out some of the major factors which influence the price of digital currency:
Supply and Demand
Like traditional currency or any other investment asset, the price of cryptocurrency follows the basic principle or market law of Demand-Supply. When the demand for a particular crypto coin increases, the price will automatically rise and when the demand for a particular crypto coin decreases, the price will tend to fall.
As the crypto marketplace is highly volatile (10% rise and fall of the price is normal) in nature, you can notice the rapid ups and downs in prices of coins.
Mining Process
Mining of cryptocurrency involves the participants/systems who are constantly solving the complex mathematical algorithms (connected to the particular server) to validate any transaction in crypto coins and ultimately update on the blockchain network.
When the systems of participants are not upgraded, power consumption is high and there is the unavailability of needed infrastructure, speed of mining drip down and the value of cryptocurrency also gets affected. Less mining, fewer coins in the market means the price rise of a particular coin takes place.
Also, every four years, when the rewards are given to miners to validate the transaction, gets halved or the event of Bitcoin Halving takes place; prices of Bitcoin get affected. (happened in May 2020)
Cryptocurrency Exchanges
Cryptocurrency exchanges are the places or interfaces available in the form of websites and mobile apps to facilitate the investors and traders. It helps investors to buy, sell, and trade their coins and charge them nominal transaction fees. Traders have to choose from already listed cryptocurrencies on the particular crypto exchange(as every crypto exchange doest not facilitate every currency available in the crypto market place).
What affects cryptocurrency price? Listing (Positive) and delisting(Negative) of cryptocurrencies on major crypto exchanges are responsible for the fluctuations of the value of cryptocurrency. If a crypto exchange lists a newly launched cryptocurrency on its platform, then the community may take the reputation of exchange into account and willingly buy those coins.
Regulations
Cryptocurrency is a decentralized currency, i.e., not managed or backed by any central authority. So the regulators had to come into the picture and administer the crypto space.
What affects cryptocurrency value? Presently, every country is regulating the currency as per their choice and requirements. Countries like Switzerland established their own crypto valley an have an easy regulatory environment (investors and exchanges can take advantage of the price of the cryptocurrency). While countries like the US, the European Union where the crypto industry has to follow strict norms, the crypto community needs to pay higher prices for purchasing or trading cryptocurrencies.
Both a conducive environment or space where there is an outright ban of cryptocurrency, affect the price of the coins.
Media
Media can break or make the prices of a specific cryptocurrency.
- The hype of the news feeds whether real or fake created by media,
- Manipulating or over-focusing the views of the prominent personalities affecting the crypto space (Elon Musk hype),
- Continuously flashing social media posts
- Debates on the announcements of the government,
- Latest partnerships press releases and many more activities curated by media(digital, social, physical) impacts the price of cryptocurrency majorly.
Crypto community either panic and start selling their coins or gets overenthusiastic to buy the coins, thereby the value of cryptocurrency fluctuates.
Credibility
How does the cryptocurrency value increase? If the network associated with particular cryptocurrency successfully maintains the
- security of coins by saving them from various cyber-attacks,
- privacy by maintaining the anonymity of senders and receivers and
- transparency in their network, then it is likely that the price of a cryptocurrency will increase due to its earned credibility in crypto space.
On the other hand, if any cryptocurrency faces problems like slow transaction speed, suspicious attacks by hackers, loss of crypto coins, and even when some of the prominent members leave the team of a particular cryptocurrency, the price would fall certainly and the demand of coins spikes down.
Summing Up
Due to the unique features associated with virtual currency or cryptocurrency, it is not only surviving but gradually becoming popular among potential investors since 2009.
Due to the highly volatile nature and various factors affecting the price of a coin, the value of a currency is a bit difficult to predict.
Various charting diagrams, candlesticks charts, divergence-convergence models and other trading tools are available in the market to help you in better price prediction and investment decisions.
If you are a newbie, don’t get afraid of a number of factors influencing the value of cryptocurrency, and try to analyze them by studying the related trends.
Don’t hesitate to start investing in crypto coins! (but with small amounts!)
