Factors Affecting the Price of a Bitcoin

Factors Affecting the Price of a Bitcoin

Crypto blockchain technology is a phenomenon that has taken the world by storm. These decentralized, transparent, and secure currency systems allow people to send and receive payments anywhere in the world without relying on third parties like banks or payment processors.

However, it’s still a relatively new phenomenon. Many people have not yet heard about crypto or understand its underlying principles.

With a price surge of over 1,000% since January 2018 and allegations of its utilization for illicit financial activities, it’s natural to be intrigued by this digital currency.

However, if you’re considering investing in or mining it, you must understand the mechanisms that determine its value. 

With that said, here’s the only guide you need about the factors determining a particular crypto’s price!

Node Count

The node count is a crucial yet often overlooked factor that impacts the price of cryptocurrencies. It refers to the total number of active wallets within a blockchain network, and is considered an indicator of the community’s strength and support for a particular digital currency.

Look at it this way. A high node count makes it much more likely that lots of people buy and sell this cryptocurrency, whereas a low node count means the opposite.

Crypto Exchanges

A token being available on many exchanges means the cryptocurrency is more likely to be traded. Essentially, cryptocurrencies can be traded at any time due to their decentralized nature.

However, if a token is only listed on a limited number of exchanges, this could result in a decrease in its value. The reason for this is that users may find it difficult to swiftly convert the token into fiat currencies or other digital assets.

The lack of trading options can make it challenging for investors to find buyers or sellers willing to trade the token, thus creating a barrier to liquidity.

You may also like: Introduction to Index Funds – A Low-Cost and Stable Earnings Option

As a consequence, the scarcity of exchange options may discourage market participants from investing in the token, ultimately leading to a decline in its market value. 

The Cost of Production

Day traders who want to make big bucks from trading crypto need to consider the cost of production. Different coins and tokens are produced by miners using special hardware and mining algorithms, all of which have substantial costs behind them.

A low cost of production means more of the crypto being produced on a daily basis, which brings the price of the crypto down.

Alternatively, a high cost of production makes it harder for people to produce the crypto, limiting its supply and driving its price up.

Government Regulations

Government regulations and trading laws also have a massive effect on the price of cryptocurrencies. If a government passes laws about how the crypto can be traded, or if they decide to ban certain types of trading altogether, it will have a massive effect on the price.

For example, suppose a country like China decides that all cryptocurrency exchanges must be shut down and banned. In that case, this will immediately impact the price of almost every crypto in circulation. It may even cause prices to drop so low that people lose interest in trading them altogether.

Scary stuff, huh?

The Scarcity of the Coin or Token

The principle of supply and demand is a widely known economic concept that holds true for cryptocurrencies as well. According to this principle, the value of a commodity is determined by the relationship between its supply and demand.

An increase in the supply of a commodity generally leads to a decrease in demand, which, in turn, results in a reduction in its price. Conversely, when the availability of a commodity is scarce, it creates a higher demand for it, which ultimately drives its price up.

You’ll be surprised to know that this applies to cryptocurrencies too. When a coin or token has a limited supply, it’s considered an asset of value. This means people will want to purchase and hold onto it for future use. You can get more info on Yuan pay group. 

You may also like: Bitcoin might just be on top amid heavy controversies

If you’re wondering why Bitcoin is so expensive right now, this is one of the reasons— scarcity!

The Takeaway

In the end, there are more factors than the ones outlined above that play a massive role in determining the price of cryptocurrencies. The reputation of the developers behind the coin, the support they receive from the community and even pure, blind luck play a part.

With all of that, there’s only one sure way of knowing you’re not investing in the wrong thing: do your research on how the crypto’s performing so far, on what support the developers are planning to provide for it, and don’t forget to follow risk management tips when investing!