What Can Affect the Price of a Cryptocurrency?
There are many things that affect the price of a particular cryptocurrency (sometimes very quickly). Here is what you need to be aware of when you trade cryptocurrencies. Of course, there is no guarantee that these things will move the market. But based on trends here are the most common reasons:
Supply & Demand
At a basic level, the price of cryptocurrencies will be driven by its availability. The scarcer a particular cryptocurrency is, the higher its price or perceived value. In contrast, a cryptocurrency with a larger supply will likely experience a lower price.
A major factor that can influence the price of a particular cryptocurrency is its perceived utility. A cryptocurrency that possesses no practical use (or real world application) will likely be viewed as having no value, which may be reflected with lower market price levels. For example, the chance in price of Ethereum (or ether) can be linked to its perceived practical utility, which is a user’s ability to build and launch their own decentralized applications on the Ethereum platform.
In the case of proof-of-work cryptocurrencies (or blockchains) such as Bitcoin, the mining difficulty of a coin can also have a direct relationship with its price. A higher mining difficulty means that it is harder to mine an additional unit of a coin. This can have an impact on a coin’s perceived value, and subsequently its price, as increasing a coin’s supply will require more computing power to be used in the mining process.
Market news often times can affect the price of a particular cryptocurrency. Positive or negative news reporting can be a heavy influencer of general public opinion regarding a particular cryptocurrency. News about a network hack for example can result in negative market opinion is likely to drive a cryptocurrency’s price down, whereas, news about a cryptocurrency’s new partnership with another tech company can result in positive market opinion and can lead to an increase in the cryptocurrency’s price/value.
Some cryptocurrency platforms, like Ethereum, host other applications. These applications, in turn, can have their own digital currencies or tokens. If one of these DApps or Decentralized Apps does very well, this can have a positive effect on the underlying platform currency.
New Exchange Listing
When a cryptocurrency gets added to a new exchange or trading platform it often times leads to an increase in exposure for that particular cryptocurrency. With an increase an exposure it can either lead to demand for that cryptocurrency (driving up the price) or a lack of demand (which can lead to a decline in the price of it).
Finally, government regulation can have a huge effect on the value of a cryptocurrency. For example, a crackdown by a government on cryptocurrency mining, or a government ban on citizens in that country buying and selling cryptocurrencies (or using cryptocurrency exchanges) can have an affect on the market price.
Another factor (similar to market news) is a matter of community opinion or rumors about a particular cryptocurrency. Opinions or cosigns by an influencer or expert in the crypto community (or rumors being spread throughout the crypto community) can lead to it rising or decreasing in that cryptocurrency’s value. These opinion or rumors are often times shared with others in the crypto community shared via blogs, social media, online chat and messaging groups, as well as other online mediums/channels.
Upgrades & Announcements
Announcements about improvements or upgrades to the network, code, or platform that a particular cryptocurrency or blockchain runs off of can affect the price of that cryptocurrency.