Cryptocurrency is on the rise, but it is still very volatile. Its value keeps increasing and dropping from time to time. This change in value could happen abruptly and can catch investors in unprepared situations.
Generally, the value of crypto tends to keep rising, but sometimes it drops unexpectedly. When it rises, you can win big with MLB odds. We will discuss the factors that cause the value of cryptocurrency to rise or fall in this article.
1. Cost of Production
Let’s use agriculture as an example. Farmers put together the funds they use in the production, from preparing the farm, planting, and weeding, up to harvesting and storage. The price of goods will be directly proportional to the cost of production.
Likewise, you can only add cryptocurrency into circulation through mining. Mining requires a lot of resources, especially power supply. The level of expertise demanded in mining is quite high.
However, the cost of production is not the same for all cryptocurrencies. The higher the cost of production, the more the coin’s value and vice versa.
2. Supply and Demand
All assets are similar regarding the relationship between their price and supply & demand. The more the supply, the cheaper it is. However, if the need for a commodity is high, the price will be higher.
Some coins are more in circulation compared to others. The crypto with a higher supply will tend to have a lesser value than one low on supply.
It reaches a point when people buy certain crypto more than others. This increase in demand makes the value increase.
Many forms of cryptocurrencies like bitcoin and Ethereum have a hard capping on the total coins that will ever be in circulation. This capping makes the asset scarce, contributing to the higher value compared to those without capping.
3. Government Involvement
Cryptocurrency is a decentralized type of currency. Therefore, there is no center of authority. However, the government finds a way of stretching its hands into crypto operations.
Because they can’t control the crypto transactions directly, they target the point when someone is converting crypto back to fiat currency. That’s the point when taxation applies. Therefore, if the tax involved is high, the value of the crypto will increase.
Also, some governments have decided to ban the operations of certain crypto in their country. When this happens, the coins lose many users, reducing their demand in that country. Reduced demand forces the price to drop.
4. Competition
Since its invention in 2008, thousands of different types of cryptocurrencies have existed, and others are being developed. Any time new crypto hits the market, it attracts investors.
These investors move from other coins to the new ones, affecting the demand and supply of the older ones. We have already seen how demand and supply affect the value of cryptocurrency.
5. Marketing and Media Hype
Media can greatly influence the value of cryptocurrency. The more coverage a coin has in mainstream media, the more people are reached, and the more the demand.
Developers of a certain coin, especially a new one, may invest a lot in marketing and promotion. They can use mainstream media or social media. Whichever means that will reach more customers, that’s their goal.
Social media influencers also play an important role in marketing cryptocurrency. The more followers one has on social media platforms, the more crypto developers use them for marketing.
6. Cryptocurrency Exchange Platforms
The intermediaries between buyers and sellers of crypto also play a role in affecting its value. The more the number of crypto exchanges offering a given coin, the higher its value will be.
Also, transactions on the platforms are charged. You will be charged a transaction fee when sending crypto to someone else. Therefore, it will have a higher value when that amount gets to the next party.
7. Node Count
It refers to the number of active users on a certain network. If the number is high, it shows that the crypto is more likely to overcome any challenges. Therefore, it will be perceived as strong in the market, which will translate to its value increasing.
8. Market Capitalization
The value of cryptocurrency is calculated from the total number of coins in supply and the individual value. It is like the total value of cryptocurrency in supply. An example is the 19 million Bitcoins in supply against 121 million Ethereum.
Conclusion
Every asset appreciates or depreciates, depending on different factors. Cryptocurrency is a virtual asset whose value rises or drops with time. This article discusses some factors that lead to this rise and drop in crypto value.
