Cryptocurrency

Factors That Affect The Value Of Cryptocurrency

A cryptocurrency is a form of digital money protected by cryptography, making it nearly impossible to forge or double-spend. The question then becomes: what factors affect cryptocurrency value? “Demand” is what immediately comes to mind. The price rises in direct proportion to the level of demand. However, there are numerous factors that affect how cryptocurrency prices fluctuate.

6 factors that affect the value of cryptocurrencies are:

1. Node Count

Node counts reveal how many active wallets are present in the same network, allowing you to assess the vitality of the community. A high count indicates a robust community and raises the likelihood that the currency will survive any impending crisis. To find out the count, use a Google search or the home page of the currency. You can see how node count affects price by contrasting it with a well-known currency along with its entire market capitalization.

2. Cost of Production

Another element that affects the value of cryptocurrencies is their production costs. Each day, miners create new tokens and validate fresh network transactions using specialized hardware or servers. Virtual tokens and a network fee are given to miners as compensation for their work. Decentralized cryptocurrencies are able to continue operating thanks to miner network activity. Therefore, the value of cryptocurrencies may rise if mining costs rise. If the rewards are too small to offset the costs and turn a profit for the miners. However, it makes no sense for them to invest their resources in mining new digital tokens. It should be noted that this isn’t always the case. Also, not all cryptos operate in the same way, so do your research before deciding.

Also Read: Tokenization: What is it and how does it work?

3. Cryptocurrency exchanges

The most well-liked tokens will be listed on almost all cryptocurrency exchanges, and popular cryptocurrencies like Bitcoin and Ethereum trade on a variety of exchanges. Investor access may be restricted by the availability of certain smaller tokens on just a few exchanges. The cost of investing goes up if a wallet provider aggregates quotes from various exchanges to swap a group of digital tokens. The exchange’s fees may be too high for some investors if a cryptocurrency is also thinly traded on a tiny exchange. A cryptocurrency’s demand may rise if it is listed on more than one exchange because more investors may be inclined to buy it. Price rises along with rising demand.

4. Government Regulation

The decentralized and unregulated nature of cryptocurrencies offends some governments, who seek to regulate the digital token market. Setting a tax on any fiat money people use to withdraw their coins is the simplest way to regulate cryptocurrency. The people looking to cash out their profits can simply use a different coin. However, this tax would only apply to certain tokens. Bans on Bitcoin, Ethereum, and a few other coins have been decided to be the best method of regulation of the cryptocurrency market by a number of nations. Unfortunately, new regulations against cryptocurrencies will have a negative effect on their value. However,  if they are adopted by a nation with a sizable cryptocurrency user base. But some nations, like Japan, are reportedly utilizing blockchain technology and creating their own national cryptocurrency, which will encourage more people to use digital tokens.

5. Social Media

Social media hype is known to affect the value of cryptocurrencies. Additionally, it works both ways because news can cause prices to rise or fall. Influential members of the cryptocurrency community, like Elon Musk, have also had an impact on the value of the DOGE coin, whether consciously or unconsciously. Although social media is chaotic, there is information to be found there. Cryptocurrency exchanges, for instance, often update information on blockchain currency or warn about crypto fraud.

6. Competition

At least 13,000 different kinds of digital tokens exist, and new ones are constantly being introduced. Although they are simple to launch, they are challenging to sustain because a network of users for that digital tokens must be established. If the blockchain has a use for the currency, it can quickly grow a network, especially if it overcomes a competitor’s obstacle. If a new rival gains traction, it will drive down the value of an existing rival while raising the value of the new currency.

Also Read: Initial Game Offering: A beginner’s Guide On Launching An IGO

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