What influences the value of cryptocurrency? The first thing that comes to mind is demand. The higher the demand, the higher the price and vice versa. For cryptocurrency, there are several factors that influence the price movement, and in this article we will take a closer look at them.
1. Number of nodes
The number of nodes indicates how many active wallets exist in the same network. You can easily find this information by simply doing a Google search or looking at the currency home page.
But why is the number of nodes important? First, it shows you how strong the community is. A high number of nodes is evidence of a strong community, and a strong community increases the chances for this currency to weather a potential crisis. Second, a large number of nodes can also indicate the strength and decentralization of a network, two important factors in cryptography.
To note: You can check whether the price of a cryptocurrency is fair by using the number of nodes. Take a look at the currency’s node count and total market cap and compare against a more popular currency. Using this method isn’t entirely accurate as the network infrastructure differs, but it at least gives you an idea of how cryptos work and how the number of nodes can influence the price.
2. Production cost
Another factor that influences the value of cryptocurrency is the cost of production. Every day, miners use specialized hardware or servers to produce new tokens and verify new network transactions. Miners are rewarded with virtual tokens and network fees for their efforts.
The miner’s network activity allows the decentralized cryptocurrency to continue to function. So, if mining costs increase, the value of the cryptocurrency may also increase. It doesn’t make sense for miners to spend their resources mining new cryptocurrency tokens if the rewards aren’t large enough to cover the expenses and bring them profit. However, this is not always the case and is not consistent across all cryptos, so be sure to do your 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 trade a cryptocurrency token, you will pay a fee for each exchange, which will increase the cost of investing.
The number of existing cryptocurrencies keeps growing, with new tokens being launched every day. There are meme coins, soccer team coins, celebrity coins and many more. There are also viable cryptocurrency projects among these new coins that could overcome a current limitation and create a strong user network.
5. Government regulations
Some governments don’t like the decentralized and unregulated nature of cryptocurrency, so look for ways to control the crypto market.
The easiest way to control crypto is to set a tax on any fiat currency people use to cash their coins. However, this tax would apply to specific tokens, so people looking to cash in their profits can just use a different coin to cash out.
Several countries have decided that there is no better way to control the crypto market than to ban Bitcoin, Ethereum, and a few other coins. Unfortunately, if a country with a large number of cryptocurrency users establishes new regulations against the cryptocurrency, it will negatively impact its value.
Nonetheless, a few countries, like Japan, have embarked on blockchain technology, apparently developing a national cryptocurrency that will lead more people to use virtual tokens.
Theoretically, if there is a limited supply of cryptocurrency, the price will increase as fewer coins are available for purchase. However, if 40% of the coins are in circulation and the remaining 60% are reserved, the price may decrease as more coins become available to buyers.
Some cryptocurrency projects “burn” existing coins by sending them to an unrecoverable address inside the blockchain. In this way, they control the available supply.
The value of cryptocurrency is known to change due to the social media hype. And it works both ways, as the news will drive prices down or up. There is also the impact of influential people within the crypto community, like Elon Musk, who influenced the value of the DOGE coin several times, whether it makes sense or not.
Social media is characterized by chaos, but there is information to be found. For example, crypto exchanges are constantly giving updates on blockchain currency or informing about crypto scams.
Cryptocurrency values are extremely volatile
There are a lot of factors that influence the value of cryptocurrency, and there is no error-free way to predict it, which is why financial experts advise you to only invest money in the. cryptocurrency that you can afford to lose and still search as much as you can. before opening your wallet.
Blockchains aren’t all about money. You can also play decentralized games there!
About the Author