Since the hype of cryptocurrency in 2016, we have seen many types of coins being priced at thousands of dollars to a single penny here we will discuss the factors affecting the crypto prices. The price fluctuation of cryptocurrency in a single day is more dynamic than the nature of crypto and blockchain itself.
The main factors affecting crypto prices are mainly demand and supply. But there are also other external factors such as scams, market trends, and laws of the country regarding cryptocurrency.
Here we will briefly discuss what makes the crypto market so dynamic and makes the value of coins go from thousands of dollars to almost zero.
Factors Affecting Crypto Prices
1. Demand and Supply
The main and common reason which affects the price of the coin is demand and supply. Similarly to traditional assets like stocks, commodities, and securities, supply and demand also have an impact on cryptocurrencies.
For instance, there is a maximum supply of 21 million Bitcoin tokens, and 92% of all Bitcoins have already been issued. Bitcoin’s price will rise over time as a result of this defined number maintaining scarcity. On that note, the stockpile component of a specific token is called tokenomics, and not all tokens have a decent inventory like Bitcoin.
Ethereum, for instance, does not have a supply cap. Moreover, some digital forms of money likewise utilize a consumption system. By sending a token to a null or unrecoverable address on the blockchain, burning it helps prevent the token supply from rising excessively in value.
In essential financial ideas, if the quantity of individuals who need to purchase crypto surpasses the number of people who need to sell, the cost would rise. Alternately, if selling outperforms the individuals who need to purchase, the cost will diminish. So this is how demand and supply is the initial factor affecting crypto prices.
2. Government Regulations and Laws
The chances of cryptocurrencies receiving specific government regulations are extremely high as they regain momentum and gain more mainstream acceptance. This currency’s decentralized and unrestricted nature is not appreciated by all governments. As a direct consequence of this, they take specific measures to control this market.
The simplest method for controlling the crypto market is to add tax assessment in exchanges. Such guidelines and limits will build the centralization of virtual money, in this manner, influencing the digital currency cost. Government regulation is one of the factors affecting crypto prices. For example, the government of India has imposed a 30% tax on gains from crypto trade.
3. Node Count
Node count is also one of the factors affecting crypto prices. The Node count shows the number of active wallets in a blockchain. This indicates the strength of a specific network. As a result, a high number of nodes indicates a strong community, while a low number of nodes suggests the opposite. A large number of nodes may also indicate a network’s decentralization and strength—both of which are crucial aspects of cryptocurrencies.
4. Trading Volume
Trading volume is another subsequent factor affecting crypto prices. Coins with higher trading volume and liquidity tend to have less price fluctuation and perform much more stable in the market. Whereas coins with higher trading volumes have the tendency to fluctuate at a higher rate. These coins usually face high price swings within a few hours.
5. Market Sentiment
Market Sentiments are the sentiments of people that are directly affecting crypto prices. It could be FOMO (fear of missing out), greed, and uncertainty. Positive market sentiment can lead to increased buying pressure, as more investors are willing to purchase cryptocurrencies. This increased demand can push prices higher.
Conversely, negative market sentiment can result in selling pressure, as investors may be more inclined to sell their holdings, leading to price declines. Market sentiment can contribute to the formation of trends and momentum in the crypto market.
Positive sentiment can create upward momentum, with more investors jumping on the trend, leading to a further increase in prices. Similarly, negative sentiment can result in a downward spiral as more investors sell, reinforcing the downward trend.
Market trends and sentiments have the biggest hand on price fluctuation on any coin one prime example is the downfall of Dogecoin.
It’s important to note that market sentiment is subjective and can change quickly. Crypto markets are highly influenced by news, social media discussions, and the collective behavior of investors. As a result, sentiment-driven price movements can be volatile and unpredictable.
What led to the Downfall of Dogecoin?
Dogecoin is the prime example which was fallen prey to market sentiment. Dogecoin was popularly based on doge meme and it gained instant popularity. Even Elon Musk tweeted about it and endorsed this coin.
In the blink of an eye, Dogecoin gained popularity and cost around $0.74 marked as the highest value of Dogecoin. But soon enough it started losing its value and dropped down to 90% of its value and currently it cost around $0.073, the whole scenario was pump and dump.
Some boulders were landed on Dogecoin the main highlight was tweets from Elon Musk and there were reportedly several transaction issues with it. There was no special utility and the entire hype of Dogecoin was based on external factors and celebrity endorsements.
The Chinese government’s crackdown on Bitcoin mining was yet another factor contributing to the train’s impending derailment. The thesis is clear, even though Bitcoin is a distinct token from Dogecoin: China does not want any digital currencies competing with its yuan, which is backed by the central bank.
This suggests that the introduction of digital currencies into the economies of some governments will not be tolerated. As the world’s second-largest economy, China’s actions have had an impact on the cryptocurrency industry.
Conclusion
These were the relevant factors affecting the crypto prices. The nature and market of crypto are quite dynamic and there is no actual regulatory body. So we suggest if you are looking to invest in any crypto coin then you should do your research. To make your research quite easy and keep track of the crypto market we present to you the best coin-tracking app known as Cryptoreach.
Cryptoreach allows users to keep track of every coin and brings you top crypto-related articles so you could stay updated. You can also keep track of your news and it also provides sentiment analysis on news which could help you to predict future prices.
Dushyant is an enthusiastic and quick learner in all fields who likes to gain experience, loves to write, and works on his creativity. He loves to explore new things and information and has the potential to spread knowledge across the world. He believes in teamwork and helping others and has a strong belief in learning from our own life experiences and exploring more through our mistakes as everyone has a story to create. His hobbies include sports, drawing, learning new things, and a deep interest in geopolitics.
