The market is currently bustling with the talk of cryptocurrencies. They have their own highs and lows depending on the state of the market. But what elements influence the value of cryptocurrencies?
8 Factors affect the value of Cryptocurrency
Cryptocurrencies, like all other currencies, are valued according to community participation. This could include the coin’s utility, demand, and scarcity. In actuality, private blockchain companies give rise to the majority of cryptocurrencies. As a result, the perceived worth of the company, project viability, and value of such cryptos will all influence their value.
The 8 main elements that influence the value of cryptocurrencies are listed below:
Node Count
The node count reveals the number of active wallets that are connected to the same network. You can find this information by doing a simple Google search or going to the currency homepage.
But why does node count matter? It first demonstrates the vitality of the community. A large number of nodes indicates a robust community, and a strong community raises the probability that a currency will withstand any upcoming crisis. The strength and decentralization of a network, two essential characteristics of cryptography, can also be represented by a high number of nodes, as well.
Cost of Production
The cost of producing cryptocurrencies is another factor that influences their market value. Each day, miners create new tokens and validate fresh network transactions using specialized gear or computers. Miners receive payment for their labor in the form of virtual tokens and a network fee.
Decentralized cryptocurrencies can continue operating thanks to miner network activity. Consequently, if mining costs increase, the value of cryptocurrencies may increase. It is pointless for miners to commit their resources to generate new cryptocurrency tokens if the returns are too low to cover the costs and generate a profit for them.
It should be mentioned that not all cryptos function in the same way and that this isn’t always the case, so do your research before making a choice.
Scarcity
The price of a cryptocurrency will rise if the supply is constrained. In the meanwhile, the price will drop if more cryptocurrencies are produced.
Additionally, some cryptocurrency projects “burn” current coins by sending them to a blockchain address that cannot be retrieved. This is a crucial method of supply management.
Competition
As more tokens are released every day, the total number of cryptocurrencies in use is increasing. There are countless additional coins, including ones for soccer teams, famous people, and memes. There are prospective cryptocurrency projects among these new coins that might be able to overcome a current challenge and amass a sizable user base.
Exchanges for Cryptocurrency
If a coin is listed on more exchanges, more people are buying it. Investors who need to shift their cryptocurrency between two or more exchanges will be charged a fee for each transaction. This will raise the price of the investment.
Government Regulations
Cryptocurrencies have a very high likelihood of drawing specific laws from the government as they gain speed and become more widely accepted. The fact that this currency is uncontrolled and decentralized offends several governments around the world. They as a result take various actions to regulate this market.
The simplest approach to regulating the cryptocurrency market is to impose taxes on transactions. The centralization of virtual money will expand as a result of these regulations and restrictions, which will impact the price of cryptocurrencies.
Bans on Bitcoin, Ethereum, and a few other coins have been considered to be the best method of regulation of the cryptocurrency market by several nations. Unfortunately, new rules against cryptocurrencies will have a detrimental effect on their value if they are adopted by a nation with a sizable bitcoin user base.
Nevertheless, a few nations, like Japan, are utilizing blockchain technology and creating their national cryptocurrency, which will encourage more individuals to use virtual tokens.
Social Media
It is well-established that social media buzz influences the value of cryptocurrencies. It also works both ways because news can drive price changes or increases. Whether intentionally or unintentionally, prominent cryptocurrency figures like Elon Musk have affected the price of the DOGE coin.
Despite the chaos on social media, information can be obtained there. Exchanges for cryptocurrencies, for instance, routinely update information about blockchain money or issue fraud alerts.
Market cap
One of the simplest measures of a coin’s market worth is its market cap or market capitalization. By calculating the total coin supply by the individual coin’s price, one can get the market cap.
For example,
| Coin A | Coin B |
| Circulating Coins = 3,00,000 | Circulating Coins = 1,50,000 |
| Price of each coin = Rs.4 | Price of each coin = Rs.5 |
| Market cap = Rs. 3,00,000 x 4 = 12,00,000 | Market cap = Rs. 1,50,000 x 5 = 7,50,000 |
As can be seen from the preceding table, even if coin B has more expensive individual coin prices, coin A has a higher market capitalization. So, using this strategy, investors may obtain a sense of how much a coin is worth.
Conclusion:
Financial experts urge you to only invest money in cryptocurrencies that you can afford to lose and to always do as much research as you can before opening your wallet because there are many factors impacting their value and there is no foolproof way to predict it.