5 Biggest Factors Affecting Cryptocurrency Prices

If you're interested in cryptocurrency, you can easily name independence as one of its key advantages. That's why digital money is sometimes referred to as a symbol of economic freedom.

Indeed, no state government can artificially influence cryptocurrency prices, and all payments are made without intermediaries and commissions for their services.

But here's the question - "If bitcoin is so independent, why does its value change at all? What factors affects its value?"

Overall, there are numerous factors affecting cryptocurrency prices (except decentralization and the absence of the Central Bank of a country).

Let's explore them together!

Supply & Demand

The inextricable link between supply, demand, and digital money prices is one of the most important and influential factors.

The relationship is quite standard: if supply greatly surpasses demand, the price of bitcoins, ethereum or any other coins falls and, conversely, it is on the rise when demand for issued coins conspicuously exceeds their supply.

The most obvious example is the Bitcoin market price chart.

Initially, when it was invented and only a small group of enthusiastic programmers were aware of its existence, the price of one coin was only 7 cents.

Nowadays, when even people out of touch with the IT industry show interest in mining, one bitcoin has risen beyond the 17 500 marks in US dollar terms.

Power of the Media

Mass media outlets impact cryptocurrency charts in both the short-term and long-term perspective.

The long-term influence is clearly visible in the above chat. The rapid growth in value in 2011 ensued as the first exchanges opened their doors, which made it possible to easily exchange cryptocurrency for conventional currency like BTC to USD, ETH to USD and vice versa.

True, initially coins sold only for British pounds and Brazilian reals. This happened in February.

However, as early as April, Time told the audience of many thousands about the new means of payment.

A genuine interest in the unusual means of payment has grown multifold and, fueled by current news, has not subsided up to this day.

Interestingly, the short-term impact of the media can be seen from the events that followed.

In June, one of the users stated that he had been robbed, with 25,000 coins stolen from his wallet (about $ 375,000 at that time).

An even more unpleasant event occurred less than a week later, as an unknown person hacked into the database of the MtGox exchange and made public logins and passwords for 60,000 crypto wallets.

The media could not keep silent about this, instantly exposing all cryptocurrencies as unreliable. The upshot was a sharp drop in prices, clearly visible on the chart, and an increased degree of distrust towards electronic money for a certain period, and not only distrust in the “victims”, but also in the entire market as a whole.

The Cost of Mining

Despite the fact that bitcoin, ethereum and most other types of coins have no material basis, they do not literally appear out of thin air. They are issued by mining.

Mining itself is nothing more than a continuous series of math operations performed by a distributed computer network. Mining requires high-performance computer components, in particular, top model video cards or servers with multi-core processors.

Meanwhile, the more powerful the equipment is, the higher its cost and the more expensive it is to operate.

For example, some miner’s profit goes to pay electricity bills alone. The amounts paid for new components to modernize the system are much higher.

All these costs are nothing more than a partial justification of the value of cryptocurrency.

Accordingly, it will grow further along with a rise in electricity tariffs and mining equipment prices.

Economic Situation (in World & Countries)

Another extremely interesting and rather curious fact: cryptocurrency prices depend on economic conditions in the world and specific countries, and this dependence is the opposite.

The worse the situation with the main currency in a country, the better feels its unregulated alternative, the so-called “reserve asset”, which is not within local authorities’ power.

This is unusual only at first glance, but upon closer examination, everything falls into place:

Overall, coins are immune to inflation.

One of the relevant examples: in the face of the crisis caused by the pandemic, the United States has boosted its money supply, thereby whipping up inflation.

Against this background, electronic money has notably risen in value, and this is true not only of the main currency, as prices for ethereum and other derivatives have also increased markedly.

In times of crisis, electronic money shows more stability.

As a country's main currency loses its value, its residents, seeking to save their money, begin to look for ways to invest it in more stable assets, and this role has increasingly been played by cryptocurrencies in recent years.

If you look at any cryptocurrency price tracker, you can clearly see that since the start of the year, along with the intensification of the crisis caused by COVID-19, the value of all the coins has increased.

In particular, bitcoin soared by 150% in price from January to November 2020, while the price of ethereum has jumped from 135 US dollars to 580 US dollars.

Rules & Regulations at the Heart of Technology

Another important factor that affects the value of the cryptocurrency is the basic rules, regulations, and technological limitations that underlie its functioning. That's why you should explore and get information on the best places to buy and sell cryptocurrency.

Bitcoin, the "progenitor" of all electronic money, is the most indicative in this regard.

The matter is that its developer incorporated from the very start two important rules into the emission algorithm, which subsequently began to directly affect the current cryptocurrency prices:

The mining speed is constant.

The number of coins issued per unit of time does not increase against growth in the number of miners. It is due to this factor that the previously voiced rule is starting to work: an increase in demand leads to a deficit.

As for the emission - it's quite limited.

From its very inception, it was known that the total number of coins issued would not be able to exceed 21 million. Preliminary estimates show that the last coin will be issued in 2040.

As the issue is halted, it will not only completely prevent the possibility of inflation, but will also additionally stimulate demand.

According to analysts, digital currency will enter full circulation in 10 to 20 years.

Incidentally, the prerequisites for this can already be easily noticed.

So What to Take With You?

In conclusion, we can note that that the above is true not only for bitcoin and ethereum, the two most known cryptocurrencies, but also for most altcoins, created on their basis as alternative technologies.

So you may be guided by the indicated factors as well when investing in altcoins.