Factors that Cause Cryptocurrency Prices to Fluctuate

What is the most trending subject for news stations, blog sites, and people today? Crypto. The craze for it is real. People are rushing to invest in it to make a fortune. People, particularly newcomers, believe that cryptocurrency is a complex but easy money-making tool. I’m sorry to burst your fictitious bubble if you think the same. The cryptocurrency market is precarious owing to fluctuating crypto prices.

What Determines the Crypto Prices?

The cryptocurrency markets are highly speculative. It is practically impossible to predict the price of a particular digital coin. You may think that the higher the demand for a specific cryptocurrency, the higher its cost, and vice versa. But demand is not the only factor influencing cryptocurrency pricing. Other aspects and concepts also make the crypto price go up and down. Let’s learn more about them.

Node Count

The node count represents the total number of active wallets for specific crypto in a blockchain. If the number of nodes for a particular digital coin is more significant, it indicates a healthy community and vice versa. The greater the number of nodes, the higher will be the network’s strength and decentralization. All of these elements are critical in influencing cryptocurrency value.

To find out the node count of crypto, check the crypto’s homepage or search on Google. Also, the best way to understand the fair pricing of crypto based on a node count is to compare it with the node count and market cap of a popular cryptocurrency. Of course, you won’t get the clear picture, but some ideas about crypto functioning and its pricing basis on node count.

Production Costs

The direct cost and opportunity cost while producing crypto also affects the pricing. The production or mining of cryptocurrencies and the processing of everyday network transactions necessitates specialized servers and technology. Miners are rewarded with network fees and digital tokens for their efforts.

So, miner network activity is required for decentralized crypto to continue functioning. Therefore, it is evident that cryptocurrency prices would rise with rising mining costs. Without the cryptocurrency’s price rising, miners will not be able to cover their expenditures and earn a profit. Hence, production expenses are a significant determinant of a cryptocurrency’s price.

Crypto Exchanges

The more the tokens are available in crypto exchanges, the more investors will buy and use them. Investors may need to use more than one cryptocurrency exchange to trade tokens. There is a cost for each trade that must be paid. As a result, the investment cost rises.

Federal Regulations

As cryptocurrencies become more popular, they are facing restrictions in some nations. That’s because crypto is not supported by any third-party authority, such as the government or banks. Hence, cryptocurrency’s decentralized and unregulated nature is not appreciated.

Certain digital currencies are subject to taxation in some nations for regulation purposes. When investors cash out a digital token, they must pay taxes in fiat money like US dollars, Japanese yen, Indian rupees, etc.

Several countries have outright banned cryptocurrency. Now, if a country with a significant crypto investor restricts cryptocurrencies, it is only inevitable that cryptocurrency prices will fall.

While some countries oppose the concept of decentralized money, Japan enthusiastically embraces it. Japan intends to create a national currency based on blockchain technology enabling residents to trade using digital coins.

Crypto Scarcity

If the supply or availability of crypto is limited, prices will likely rise. The rule of thumb here is that the higher the demand, the higher the price and vice versa. Some crypto project owners reserve a fixed quantity of crypto and then distribute the remainder to the market.

As they add more crypto to the circulation, the price falls. Some projects regulate the quantity and price of digital currency by destroying them. They do so by transmitting them to unrecoverable blockchain addresses.

Social Media Influence

We are well aware of the power of social media. A single tweet, post, or comment can make things viral and famous. It has a more significant impact when it comes from influential people such as celebrities, politicians, well-known entrepreneurs, etc.

The best example is Elon Musk, who has influenced the Dogecoin value multiple times, whether purposefully or unintentionally. Hence, one of the critical factors influencing cryptocurrency pricing is social media buzz.

Closing Line

In terms of value and existence, the cryptocurrency market endures wild fluctuations. But one thing is for sure: it is here to stay. However, before investing in cryptocurrency, conduct extensive research. Lastly, invest money you can afford to lose to protect your livelihood and savings.

Happy investing!