The Rising And Falling Value Of Cryptocurrency: What You Need To Know
The cryptocurrency was introduced to the world in 2009 by Satoshi Nakamoto, the pseudonym identity. In 2009, the world’s largest cryptocurrency was launched, Bitcoin. It’s been a decade since the launch of cryptocurrency tokens, and since then, the market of crypto assets has been growing.
Now there are 9,500+ cryptocurrencies existing in the world. Cryptocurrency uses Blockchain technology acting as a public ledger and has been the driving factor in making crypto assets to be secure.
We all know the market of cryptocurrency is highly volatile and is prone to get affected by many factors. The high volatility makes cryptocurrencies a risky investment. However, if you understand the factor driving the price swing, cryptocurrencies can be the best pick for you to invest in long-term at the same time generating passive income. In this article, we will shed light on the main factors responsible for the price swing of crypto assets. If you are new to the world of cryptocurrencies, then it is of utmost importance to have an understanding of these driving factors, or else you may have to deal with bad times. Do checkout Bitcoinx.
- Supply and demand
- Cost of production
- Node count
- Crypto exchanges
Why Cryptocurrency Prices Fluctuate: 5 Key Factors
Supply and demand
Cryptocurrency is also the market. Each and every market work on the principle of demand and supply. If the demand is increasing faster than supply, then the price value of the product goes up. The same goes for digital cryptocurrency. Any particular cryptocurrency gains value when the demand for the currency is higher than the supply.
If we talk about the most popular form of cryptocurrency, i.e., Bitcoins, they are limited to supply chain of 21 million. This built-in scarcity of bitcoin makes it be largest price value, holder. Due to scarcity, the price of bitcoin will keep increasing over time.
Cost of production
Cost of production is also one of the most important factors responsible for the fluctuation or the price swing of cryptocurrencies. Every single new token gets generated with the mining process. Mining is the process responsible for the functioning mechanism of blockchain technology.
To mine the blocks on the blockchain, huge hardware systems are needed to verify, and these systems consume lots of energy. Verifying cryptocurrencies needs a huge amount of computing power. Thus, if the production cost is high for a specific cryptocurrency, then the price value is assumed to be high.
What is Node count? Node count is considered to be the designated number of active wallets within a particular network. An increased node count signifies the strength of the community. Higher the node count, the higher the price value and potential of specific digital currency to solve the problems. A higher node count also denotes the decentralization of the particular currency. You can easily check the node count either by doing a quick search. You can compare if the digital currency is reasonably priced or not by just checking the market cap and node count.
Cryptocurrency exchanges are also the factors deriving the price value of the specific digital currency. If the designated cryptocurrency is listed on multiple exchanges, then it will automatically be linked with the increased demand.
The increased number of crypto exchanges denotes the vast segment of investors willing to buy the digital currency. The whole mechanism of the crypto exchanges directly raises the demand for a digital asset, and the same high demand leads to a price swing.
Since the launch of digital currencies in 2009, the newly launched currency, tokens, and coins have been increasing continuously. The entry of newcomers is relatively low. However, the competition among different cryptocurrencies is responsible for creating a viable network. Increasing competition does have a very crucial effect on demand. Thus, competition is also the factor driving the fluctuations of the price values of different digital currencies.
So, these were the most crucial driving factors for the price swing of the cryptocurrency. If you understand the core concept of demand and supply, you will beagle to take more efficient investment decisions for cryptocurrencies.