Crypto 101: Learn how the value of crypto changes

Crypto is one of the biggest financial industries in the world today. It is a clear make or break industry with unstable value, which is why you can expect rapid movements in the market most of the time.

Cryptocurrency price changes at any time which is the main disadvantage of the crypto industry. There are a lot of people that still wonder how crypto found itself to be volatile to begin with. Investors also need to learn how to manage their coins in the middle of a lowly or active stretch.

There are a lot of factors that affect crypto’s price. For starters, the volatility of crypto depends on the number of users. If there is an increase in the number of users, the value of the coin will increase as well. On the other hand, there is a decrease in value if the coin becomes less relevant in the market.

Why is crypto volatile in nature?

Crypto is not a short-term investment that will yield you bigger prices in a snap. It is an asset that requires knowledge for you to participate in the market and take advantage of the coin's volatility. 

What makes crypto volatile is the fact that there is no central bank to handle it. While this can be seen as an advantage, it is also a problem for the crypto industry since no authority is obliged to step up and control the volatility. Some even say that the volatility of crypto is the price people have to pay for a market free of distortion from authorities.

Another big factor that affects cryptocurrency’s valuation is that it is still young within the finance industry. The oldest crypto, Bitcoin, is just around 14 years old, meaning it is a young asset that needs more time to be analysed just like any currency out there. 

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What drives crypto prices

All crypto are decentralised, meaning that it is not issued or backed by a government or any central authority. Monetary policy, inflation rates, economic shifts and other factors do not affect crypto as it is seen more as a commodity than being used to store value.

This means that what makes cryptocurrency go up and down can be related to the common factors that also affect commodity prices in the world. Here are some of the factors that drive crypto prices:

Supply and demand

Any supply of a digital asset plays a huge role in determining its value in the market. A scarce asset can lead to higher prices while one that has an abundance of coins circulating the market will be cheaper. For starters, the amount of Bitcoin produced over the years is capped at 21 million, which means that the coin is designed to halt its production over time to ensure that there is not a lot of supply.

This is why every four years, Bitcoin has a halving event. During this time, the number of coins given as a reward for mining a block is cut in half. The last halving took place in May 2020, which means that there is still enough time to invest in this coin especially with the demand rising up again.

With supply lowered due to halving, you can expect Bitcoin to be on point to fuel its price increase. This is why a lot of experts see the halving event as an effective way to kick up its value.

Mining costs

Bitcoin’s price in the crypto market is also affected by the marginal cost of production. This is the rough cost of a sum of the direct costs for maintenance in mining. 

Depending on how difficult it is to mine Bitcoin, it can either slow down or hasten the production rate. This is the same for any other coins. The process affects the overall supply, thus changing the value of the coin as well.

Number of competing altcoins

The prominence of the crypto industry has led to a lot of opportunities for most investors and aspiring innovators. While Bitcoin still thrives as the leading crypto in the industry, there are a lot of tokens and coins that are gunning for investment funds. The dominance of Bitcoin has waned over time, with 50% of the overall market cap now being in contest with other altcoins.

Ethereum has already taken the fight to Bitcoin and has proven itself as a formidable competitor. New crypto coins are introduced regularly so you can expect demand and awareness for the industry to increase by a huge margin. Bitcoin still benefits from the huge number of crypto in the industry, but this shows more possible cryptocurrency price changes in the long run.

Regulations

Crypto is seen as a win in the finance sector, and being unregulated by any government means that it has no borders and enjoys a regulation-free ecosystem over the years. However, while this has its benefits, it also has its drawbacks in terms of sustainability and crypto acceptance.

With no regulations, this means there are no limits to how much cryptocurrencies are used. However, now that governments are pushing for crypto regulations, this means there are going to be changes. The United States has already passed a ruling that resulted in an increase in Bitcoin's price.

China, on the other hand, has effectively banned all Bitcoin trading and transactions since September 2021. This meant that a lot of mining farms in China had to move to crypto-friendly countries such as Singapore.

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How does cryptocurrency value increase

Crypto price increase is unpredictable but can be affected by daily surges in value. However, it depends more on the actual use of the coin and the attention diverted into it. This is why crypto transactions, mining, and news are relevant factors that can shape the overall value of a coin.

Like any market, crypto value increases depending on the perception of the coin at a given time. This can happen any day of the week, which means that crypto volatility is clearly unpredictable but can be anticipated through the usual trends of a coin.

Here’s how crypto value increases:

Trading

Crypto trading is the latest trend in crypto. Users buy and sell crypto just like how they do in company shares. Buying stocks grants you ownership of a company, and it works the same as purchasing a coin.

The crypto monetary system plays a huge role in the impact cost of crypto trading. The value of a crypto changes over time as long as transactions are kept at a consistent level. The more trades are made with crypto, the better its value can be in a given stretch of time.

Mining

Mining is the overall production of crypto, and the more blockchains are mined, the more coins there are going to be. Miners need to solve difficult problems before they get rewarded. Depending on the mining speed, a crypto may have a lot of supply or a shortage of it. This is why overall production is a huge factor in crypto that should not be overlooked as well.

Media coverage

The value of crypto also changes based on how the public sees or the attention it receives. This is why media coverage plays a huge role in crypto value as a whole since there are a lot of different platforms for media and news, thus a bigger reach for every coin out there.

There are also a lot of crypto influencers today who talk about crypto. From value gains, trading tips, to which coin to invest in, influencers give advice to potential investors and share their knowledge about crypto, which can lead to a bigger value for certain coins.

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What determines cryptocurrency value

The technology behind crypto plays a huge role in how its value is determined. Most decentralised currencies are resistant to censorship, so it is nearly impossible to shut them down in a snap. 

There is no accurate prediction of how much crypto will increase or decrease in its value. This is why a lot of people need to watch out for the crypto market every single day and see how well it has been doing for a lot of coins, especially the ones where they invested in.

Here are some of the factors that determines cryptocurrency price changes:

Node count

Node count is one of the best and most important indicators that will project the overall value of a crypto. This is the measurement of the number of wallets on the network that still exists, and this can be searched on the internet.

This is used to analyse if a currency has a fair price or not. One can look for the node count and the total market cap of the crypto and then look for other crypto indicators and compare how different they are. This is one way to find out if a crypto has been overbought and if the coin has a strong community.

Mass adoption

Mass adoption has been one of the biggest dreams for every crypto. If a coin gains mass adoption, then the value will shoot over the roof since the number of the coins are limited. An increase in demand will result in a price increase as well.

Crypto is now accepted as a payment method among many companies, which means adoption is still underway. It may take some time for a full crypto integration around the world, but progress is still progress.

Fiat inflation

Fiat inflation is also what makes cryptocurrency go up and down. If a fiat currency fails, then the price of a crypto will move up to match the price of the said currency. This means investors can get more of that said currency with the use of crypto. 

This is common among different countries, and most central banks have tried to keep interest rates artificially low while printing more and more money. That is how crypto can benefit off fiat inflation, which is a common trend among many countries.

Make the most of crypto value changes

The value of any crypto can change in a snap. This trend will continue for years to come, and the best move for investors is to come up with an efficient idea to make a lot of trades and even put some money in cloud mining.

The crypto business is a roller coaster ride on its own. It has high peaks and drastic falls as well, which means you may want to consider your options if you are keen to invest. The more you know how to handle volatility and manage your coins, the better chances you have of coming up with a huge investment.

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Words: Paul Daniel Flores