What Affects The Price of Cryptocurrencies?
Last Updated: 1st November 2018
The price of cryptocurrencies, like any other asset class, are driven by a multitude of factors. Here is a non-exhaustive list of factors that influence cryptocurrency price movements.
Supply & Demand
At a basic level, the price of cryptocurrencies will be driven by its availability. The scarcer a digital coin is, the higher its price levels. In contrast, a virtual currency with an abundant supply will likely experience lower price levels.
In the case of proof-of-work blockchains such as Bitcoin, the mining difficulty of a coin can also have a direct relationship with its price. A higher mining difficulty means that it is harder to mine an additional unit of a coin. This can have an impact on a coin’s perceived value, and subsequently its price, as increasing a coin’s supply will require more computing power to be used in the mining process.
A key factor that will affect the price of cryptocurrencies is its perceived utility. A virtual currency that possess no practical use will likely be viewed as having no value, which may be reflected with lower market price levels. For example, Ether’s price movements can be attributed to its perceived practical utility, that being a user’s ability to build and launch their own decentralized applications on the Ethereum platform.
Market News can also affect the a coin’s price movements. Positive or negative news reporting can be a heavy influencer of general market sentiment regarding a particular coin. Media reporting about a network hack for example is likely to drive prices down, whereas, coverage about a coin’s increasing adoption can result in positive market sentiment that drives a coin’s market price upward.