The Triggers That Affect The Value Of Cryptos
There are many factors that determine the value of a cryptocurrency. A few of these include market sentiment, technical analysis, and news events.
The most important factor in determining the value is what people are willing to pay for them at any given time.
This means that if there is a lot of hype around a particular coin or token, it will be worth more than currencies not receiving as much attention from investors.
In this post, we will go over some specific examples which have influenced the price of cryptocurrencies recently so you can better understand how they work and make your own decisions about where to invest! Some of these factors include regulatory changes, government interventions, and media coverage.
Understanding The True Value Of Cryptocurrency
As with anything else, investing in cryptocurrencies is inherently risky. The market can change at any time, sometimes for the better and sometimes for the worst depending on external forces.
This means that it becomes more important than ever to understand how these factors affect the prices of crypto tokens.
One factor which affects the value of all cryptocurrencies is the government regulations around them. For example, Japan has officially accepted Bitcoin as a legal payment method while China continues to put pressure on cryptocurrency exchanges even though they are not completely banned yet (at least until April 2018.)
These types of events tend to cause an increase in demand since there are more people who want to buy digital currencies so prices rise accordingly, however, it also results in a drop in value since people have a new, low-cost option to acquire crypto tokens.
The media is another factor that affects the prices of cryptocurrencies since it affects the sentiment around them.
If you remember last year (in January) when Bitcoin was soaring and experts felt that it would soon reach $3000 the news channels were filled with stories.
These stories about Bitcoin and many different advertisements appeared on social networks like Facebook and Twitter asking people to buy into this “amazing opportunity.”
As a result, there was an increase in demand and the price of Bitcoin grew higher but then we also saw big drops in value.
The drop in value was because they existed too high for too long and they seemed unsustainable so almost everyone who bought at that time regretted it later.
This is because the main factor that affects the value of cryptocurrencies is people’s sentiment around them because they are not backed by any nation or central bank.
If there are financial issues in a country, even if there is no other justification for it, you can be sure that this will have an effect on the price of cryptocurrencies.
This is because people might think “if I have to deal with economic problems now may as well deal with them using Bitcoin instead of the currency issued by my government so selling their own national currency and buying Bitcoins would be more logical.”
Currency crises are not easy to predict but when they happen, valuable cryptos will always suffer losses so if you want to buy into one then choose very carefully when the market is stable.
3. Supply and Demand
The supply and demand of cryptos play a big role in their value, just think about it. Mining cryptocurrencies is a process that requires computing power.
What that means is the more people mining them then the higher chances are of cryptos being mined faster.
As a result, it will have an effect on its price because there are fewer cryptos left to be mined so when you mine one you can expect it to be worth more than what it was before.
Consider this scenario “if only 1 million Bitcoins will ever exist and I’m mining them with 5 million other people then obviously each Bitcoin is not going to be very valuable because in order for me to benefit from having a Bitcoin in my possession I would need at least 50 Bitcoins in order for me to make any decent money”
Demand also plays a big role in how much a cryptocurrency is worth.
If you have an increase of people who are interested in buying cryptos then obviously there will be an increased demand which leads to the prices rising. This goes for cryptocurrencies that are not mined, if it’s based on supply and demand then there is no need for mining since they’re all already created by the company.
As of right now none of these factors are certain yet but once they are implemented into the system you can expect the value of cryptocurrencies to rise exponentially.
When new cryptos come out with either unique features or better technology their price would go up compared to every other cryptocurrency.
It will make them more outstanding than others. It happened with Bitcoin before when the altcoins began being introduced into the market.
The more people start using it, the higher its value will be since its utility increases.
As a result of this demand, the price rises and vice versa. The more potential a coin has for being used in real life or even online transactions the better transaction fees they have which increase its value as well as make it user-friendly.
Transaction fees are paid by users to miners who run powerful computers that basically process every single transaction made on the network verifying them through different algorithms and adding them to their ledger called blockchain.
If there are not enough transactions happening then you can expect other cryptos with low transaction fees to take over and replace Bitcoin as the number one cryptocurrency.
4. Cost Of Production Of Cryptocurrency
As in the case of any other product, the cost of production plays a major role in influencing its price.
The more complex or expensive it is to produce or mine then the higher value it will have.
Currencies with low mining fees are constantly under threat by rival cryptos that offer cheaper transaction fees.
For example, Bitcoin Cash has replaced Bitcoin as it offers lower transaction fees meaning users get more for less when they use BCH over BTC.
5. Productivity Of The Blockchain
Another factor that affects cryptocurrencies is productivity which simply means how many transactions per second the blockchain can handle at any given time frame.
For example, if you know your blockchain can handle around 100 transactions per second and another cryptocurrency comes along promising 1,000 transactions per second then that’s one thing to consider before picking a currency.
6. The Supply Of The Coin
The supply of the coin also affects its value because the higher the supply of coins available to mine, the lower their values tend to be.
For example, Bitcoin is in limited supply with only 21 million Bitcoins ever able to be mined which makes them so much more valuable than currencies like XRP which doesn’t have a total supply cap meaning they can create an infinite number of coins.
7. The Number Of Cryptocurrencies Out There
As it stands there are over 2,000 cryptocurrencies out there and while that sounds great it’s actually become too overwhelming for some people especially when you look at all these things that affect their values.
8. The Larger The Network Of A Cryptocurrency Is, The More Valuable It Gets
The larger the network of a cryptocurrency is, the more valuable it’s going to be because there are so many people using it as well as its potential for mainstream adoption.
9. How Much Does A Coin Or Token Cost?
This can have a significant impact on how much a coin or token costs and often times those prices change from site to site which can make your head spin.
10. China’s Role In This Process
China continues to play a major role in this process by taking steps that other countries continue to follow whether they want to or not.
11. Crypto Exchanges
The crypto exchanges play a major role in this process as well since they are the place where all of these cryptocurrencies can be bought, sold, and traded. The more crypto appears on these exchanges the more likely it is to be seen which leads to greater adoption.
12. Crypto Regulation And Scams
The countries that regulate cryptocurrencies will also play a major role in affecting their value and how much they cost since you really cannot have one without the other. There are also scams within this process and we discuss some of them here.
13. The ICO Process
ICOs can make or break any coin or token and we cover how they affect the price and what factors come into play with them (hint: most newer ICOs do not meet all of these criteria). This is where many cryptocurrencies get their start when seeking investor funds for building out their project.
14. The Usage Of The Crypto
The most important and fundamental criteria for evaluating the value and cost of any cryptocurrency is its usefulness as a medium of exchange.
If it cannot achieve wide acceptance among merchants and service providers, then it not only fails to fulfill one of the basic requirements of money but also fails to generate demand for itself in the future.
15. The Network Effect
This is where many cryptocurrencies are failing since their network effects are either zero or negative which leads to losses in both use cases and value. Soon enough, these networks will become less decentralized over time if they do not change direction.
16. Cryptocurrencies As A Speculative Asset Only?
Speculation has already crippled many cryptos while others exist with no value whatsoever because they are completely overvalued.
Currencies should solve problems to generate value but many cryptocurrencies are following Bitcoin’s path which leads the former to lose their practical utility while investors are holding them for speculative purposes only.
17. The Fundamental Flaws Of Bitcoin And Others
Bitcoin has major flaws that undermine its value and usability as a common medium of exchange, store of value, or anything else for that matter. This is not just limited to Bitcoin but all cryptos that share Bitcoin’s flaws.
When Bitcoin lost 80% of its value in the past, it was clear that there was irrational exuberance by both retail and institutional investors leading to massive gains and losses generated during short periods of time.
So what are the best ways to evaluate a cryptocurrency?
The truth is that there are no effective ways to evaluate the value of cryptos because most do not have any real inherent value.
It’s worth noting that many coins are solving real-world problems, but their current market cap is not proportional to the economic impact they will have on our society.
So keep this in mind when you evaluate cryptos: If you find a currency that is extremely promising and it’s highly undervalued, its price may jump in the next few months.
This means that your best chance to make lots of money is when everyone else has already bought something and they are still buying due to momentum.
As you can see, many things influence the price at any given moment in time (even if only temporarily). It’s up to you to pick undervalued currencies and hold them until sentiment has shifted towards other cryptos, but it will require patience and astute market analysis.
Many people tend to get fickle about these kinds of decisions because they lack the required discipline. Of course, that’s not including pumps/dumps which are often planned by large groups of investors who typically work together on social media channels like Telegram or Discord.
For example, a pump group may find an exchange with low liquidity and plan for buying a specific coin – let’s say $1000 worth at 20c each. The more money they have, the higher they can push the price up.
They sell their coins at a better rate for a reasonable return and repeat this process later on. The downside is that nobody knows when this will happen and it’s really only an option if you’re willing to risk your entire investment amount.
Crypto influencers are one way the market is becoming more centralized – another being whales (people with huge sums of money), who can use their wealth to affect prices in leaps and bounds by buying or selling large amounts of any given currency.