What influences cryptocurrency value? The first thing that comes to mind is demand. The higher the demand, the higher the price and vice versa. For cryptocurrency, several factors influence how the price fluctuates, and in this article, we’ll take a closer look at them.
1. Node Count
The node count shows how many active wallets exist in the same network. You can easily find this information by simply making a Google search or checking the currency homepage.
But how is node count important? First, it shows you how strong the community is. A high node count is proof of a strong community, and a strong community increases the chances for that currency to overcome a potential crisis. Second, a large number of nodes can also indicate the strength and decentralization of a network, both important factors when it comes to crypto.
Note: You can check if a cryptocurrency is priced fairly using the node count. Take a look at the currency’s node count and total market capitalization and compare them with a more popular currency. Using this method isn’t entirely accurate as network infrastructure differs, but it at least gives you an idea of how cryptos operate and how node count can influence price.
2. Production Cost
The production cost is another factor that influences cryptocurrency value. Every day, miners use specialized hardware or servers to produce new tokens and verify new network transactions. Miners are rewarded with virtual tokens and a network fee for their efforts.
The miner’s network activity allows decentralized cryptocurrency to keep working. So, if mining costs increase, the cryptocurrency value may also increase. It makes no sense for miners to spend their resources mining new cryptocurrency tokens if the rewards are not big enough to cover the expenses and bring them profit. However, this isn’t always the case and isn’t uniform across all cryptos, so make sure to research before committing.
3. Crypto Exchanges
If a token is available on a large number of crypto exchanges, it increases the number of people buying and using that token. If you need two or more exchanges to swap any cryptocurrency token, you will pay a fee for each swap, raising the investment cost.
The number of existing cryptocurrencies just keeps going up, with new tokens being launched every day. There are meme coins, soccer team coins, celebrity coins, and many, many more. There are also viable cryptocurrency projects among these new coins that could overcome a current limitation and build a strong users network.
5. Government Regulation
Certain governments do not appreciate cryptocurrency’s decentralized and unregulated character, so look for ways to control the crypto market.
The easiest way to control crypto is to set a tax for any fiat money people use to cash out their coins. However, this tax would apply to specific tokens, so people looking to cash out their profits can simply use a different coin to cash out.
Several countries decided there is no better way to control the crypto market than banning Bitcoin, Ethereum, and a few other coins. Unfortunately, if a country with a large number of crypto users sets new regulations against cryptocurrency, it will negatively impact its value.
Nevertheless, a few countries, such as Japan, are engaging with blockchain technology, reportedly developing a national cryptocurrency that will lead to more people using virtual tokens.
Theoretically, if there’s a limited cryptocurrency supply, the price will go up as fewer coins are available to buy. However, if 40% of the coins are in circulation and the rest of 60% is reserved, the price may decrease when more coins become available for buyers.
Some cryptocurrency projects “burn” existing coins by sending them to an unrecoverable address inside the blockchain. This way, they control the available supply.
Cryptocurrency value is known to change as a result of social media hype. And, it works both ways, as the news will lower or raise prices. There is also the impact made by influential people among the crypto community, such as Elon Musk, who influenced the DOGE coin value several times, whether meaning to or not.
Social media is characterized by chaos, but there is information to be found. For example, crypto exchanges constantly give updates on blockchain currency or inform about crypto scams.
Cryptocurrency Values Are Extremely Volatile
There are a lot of factors influencing cryptocurrency value, and there is no error-free way to predict it, which is why financial experts advise you only to invest money in cryptocurrency that you can afford to lose and always complete as much research as you can before opening your wallet.
Blockchains aren’t all about money. You can play decentralized games on them, too!
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