The main common feature of all cryptocurrencies is that their price fluctuates very often. Have you ever wondered what might affect their price? Here are 5 main factors.
Supply and demand
This is one of the main factors influencing the cryptocurrency price. The higher the demand and lower the supply, the higher the price and vice versa. If demand is relatively low and supply is high, the value of the coin will decrease.
Unlike fiduciary (traditional) currencies, the supply of cryptocurrencies is limited. Moreover, over time it starts to gradually slow down. For this reason, it is very likely that the demand for assets will exceed the available amount.
Of course, the demand for individual cryptocurrencies may vary greatly. This in turn is influenced by a multitude of other, specific factors that distinguish a given virtual coin from others.
Cost of extraction (mining)
Cryptovcurrencies like Bitcoin don't come from nowhere. Crypto miners extract them (mining) using special equipment called excavators. This process becomes more and more difficult. If the cost of extracting virtual currencies increases, it will certainly affect the price itself.
Read also: How Does Bitcoin Mining Work?
Rules and regulations
Other important factors that correlate quite closely with the cryptocurrency course are the different types of rules or requirements introduced by national authorities. In some cases they are positive, in others not necessarily.
If the rules become quite restrictive or take the form of repression, the price of the cryptocurrency may fall. On the other hand, if they are friendly to the crypto industry, they will become a catalyst for strong increases.
Read also: Airdrops - what is airdrop and how it works?
Power of the media
Media is the main tool that can help or harm cryptocurrencies. They are the reel that drives moods among investors. The way media writes about cryptocurrencies largely affects the demand. Good news can certainly increase it, while bad news can cause panic, which leads to a quick escape of investors from the market and rapid falls.
Of course, media can also play a positive role indirectly, not by giving catchy news, but by educating and providing knowledge about cryptocurrencies. This in turn translates into greater public understanding and a desire to have virtual currencies.
The price of the cryptocurrency also depends on the economic situation in the concerned countries. If the traditional financial system starts to collapse, people panicly run in other assets. Then even Bitcoins become a much better form of capital security for them than inflationary fiduciary money. The crises therefore have a strong connection with the price of virtual currencies. The more people enter this market, the greater its capitalisation.
Perhaps there are several other factors that can also translate into the price of cryptocurrencies, such as manipulations caused by large players. The ones mentioned above, however, are most visible.