In recent years, the crypto space has been booming. The increase in the popularity of cryptocurrencies has led to an influx of new investors entering the crypto space. So much so that the market cap for digital currencies has surpassed $800 billion. The price of cryptocurrencies such as Bitcoin and Ethereum increased dramatically in 2017, leading some to believe there’s no better time than now to invest in digital currencies. Despite the media attention surrounding these currencies over the past few years, many investors remain wary of cryptocurrencies. They’re unsure about which tokens to purchase and how to invest in this emerging market successfully.
Many people have heard about cryptocurrency but don’t understand how it works or what to do with it. Investors consider many factors to get ahead of the investment curve. If you’re just getting into the crypto investment scene, these ten factors are worth looking into.
Top Factors That Affect Cryptocurrency Value
Table of Contents
Crypto exchanges are a big influence on cryptocurrency prices. If a token is available on a large number of exchanges, it will be easier to buy or sell it. This means that investors can get in or out anytime they like, increasing liquidity and limiting volatility. If there is no crypto exchange where you live or if none of them have your favorite coin, then it might be worth considering moving somewhere else to participate in this exciting market!
Many websites online can help you exchange the currency into any crypto and vice versa. If you are looking to invest in Ethereum, it is important to use the right platform and see how to exchange eth to pkr and vice versa to begin your investment. You must do thorough research because if a token is only available on one exchange, its price can easily be manipulated by that exchange’s administrators or owners. If a token is available on multiple exchanges, it becomes more difficult for an individual exchange to manipulate the price. This is because there are other exchanges available where people can buy or sell tokens for more reasonable prices.
2. Market Capitalization
Another factor that affects the value of a cryptocurrency is its market capitalization. A high market cap indicates that there are plenty of investors who believe in the long-term potential of the coin or token. This makes it more likely for it to increase in value over time as long as there are no significant changes in how it works or how people perceive it.
Bitcoin’s market capitalization is currently leading the charts and is at $590 billion, whereas Litecoin stands at $4 billion.
3. Production Cost
The production cost of a cryptocurrency is a major determinant of its value. This includes the cost of creating new coins through mining and maintaining the network through running nodes or validating transactions on the blockchain. This process uses up computing power, which requires electricity and hardware to run them. It determines how much money is spent on mining them and how much profit can be generated from doing so.
Mining involves using computer processing power to verify the next block on the blockchain and receive a reward for doing so. Anyone can do this process with a computer. Those who mine for profit usually use powerful machines with high-end graphics cards or ASICs (application-specific integrated circuits). The more processing power you have behind your mining operation, the more likely you will be rewarded with new coins based on how many blocks you successfully verify.
4. Mining Difficulty
The difficulty level of mining a block depends on how hard it is to solve mathematical puzzles to create new blocks as more people join mining pools, the difficulty increases. More miners are competing for rewards on each block they mine, which means that mining becomes more expensive and less profitable over time, causing some miners to quit altogether. Many miners increase their prices to make up for lost profits from falling difficulty levels or lower transaction fees from increased competition between miners.
5. Node Count
The node count refers to the number of people running the blockchain network on their computers. The higher this number is, the more stable crypto is as a whole. This is because more people are verifying transactions at any given time and checking for double-spending problems. A large node count also increases the overall decentralization of a blockchain network, which makes it less susceptible to attacks from malicious actors trying to gain control over it.
6. Number of Developers Working On the Project
A large number of developers working on a project mean that there will be constant updates being made to improve its functionality or add new features that make using it easier for its users. Such projects tend to attract new investors who want to invest in something valuable enough that other people want.
An article published by Forbes at the beginning of 2022 reflected on the developers of each cryptocurrency during the year 2021. The statistics showed that Terra had a 313% increase in its full-time developers from December 2020 to December 2021. Ethereum, on the other hand, has 1,300 full-time developers creating applications.
7. Block Size
This is another important factor to consider when investing in cryptocurrencies. Block size refers to the amount of data that needs to be stored on each block on a blockchain network. If this value is too low, then transactions will take longer to complete and fees will go up as well because more space needs to be reserved for storing transactions on each block.
Bitcoin and Ethereum have limited their block size to 1MB and can store up to 2,000 transactions.
8. Supply and Demand
Supply refers to the total number of coins available for purchase. This number is fixed for some cryptocurrencies, such as Bitcoin and Litecoin. Others have a fixed supply, but the rate at which new coins are created can change over time. The supply of Bitcoins is limited to 21 million bitcoins, which means that once all bitcoins are mined, no more bitcoins will be created. This cap on the bitcoin supply ensures that there won’t be inflationary pressure on bitcoin value as more people start using it.
Demand refers to the desire or need for a product or service. Demand affects the price because it influences people’s interest in buying or selling something. The more interested people are in buying something, the higher its price will go; conversely, if there is less demand than expected, prices may drop further still.
9. Government Regulations
The value of cryptocurrencies is directly related to government regulations. Governments have been trying to come up with ways of regulating cryptocurrencies to protect investors from fraud and scams. Some countries like China have banned the use of cryptocurrency completely, while others like Japan have given it a legal status and allowed people to trade in them freely.
10. Adoption Rate
Another important factor determining cryptocurrency value is its adoption rate among people who use it as a payment method online or offline. For example, if you want to pay for something using Bitcoin, there must be someone who accepts Bitcoin as a payment method for buying or selling their products or services. Otherwise, your bitcoins will have no value because you can’t buy anything with them except just buying and selling the currency.
As you can see, many factors affect the value of the future of cryptocurrency. Although some people may know about certain aspects, it is far from everyone’s expertise. If you are new to trading in this niche, you may want to learn more about its intricacies. You don’t have to be a financial analyst or an economist, but it always helps to understand more about the reasoning behind cryptocurrency valuation.