Several factors determine cryptocurrency value and make its market go up and down. These factors usually encompass how cryptocurrencies like bitcoin are valued. Users can sum up these causes with two primary aspects, such as supply and demand. They influence the price and market volatility.
Determining Bitcoin, for example, requires understanding the supply and demand. These two aspects also play a vital role in the ups and downs in the prices. BTC has a current cap of 21 million. Once it reaches the cap, the mining process will not help create new BTCs. General Economics reveals that the price increases when a crypto demand cannot go with the supply. Other factors that may affect cryptocurrency prices and its market include external and internal factors.
Internal Factors
When determining factors that make the crypto market rise and fall, nobody can ignore internal dynamics. These include the following:
Traders
Active cryptocurrency traders can significantly affect the up and down of the rates. Small cryptocurrency traders rely hugely on the big investors for choosing to buy, hold, or sell their digital assets. Big cryptocurrency traders aspire to control the price fluctuation through various marketplace tools according to its appropriate conditions.
Influence of Various Digital Currencies
It is all about how the increase in a specific digital currency like bitcoin can influence the price value of other altcoins. For example, it can cause altcoin to fall its price in fiat value and go cheaper further than bitcoin. When bitcoin price grows, altcoin’s price value pushes to BTC, getting the necessary support to maintain its position.
External Factors
Determining the cryptocurrency market involves numerous external factors. These include:
Modernization in Cryptocurrency Software
Cryptocurrency software may get new updates to enhance its features. The Segregated Witness, for example, is the updated version of the bitcoin software. Also known as the SegWit, the modernized software helped BTC double its value on the cryptocurrency market.
Mass Media Influence
Celebrities can also influence the cryptocurrency value and market to a great extend. Positive and negative insights from these influential celebrities can significantly impact how the general public perceives digital currency. It eventually affects the market prices of that particular cryptocurrency.
Worldwide Adaption
As individuals, companies, and businesses gradually begin to accept cryptocurrency as the mode of payment, it could boost its demand. On the other hand, if more people reject a specific cryptocurrency, the opposite side applies, decreasing its market demand and subsequent value.
Trading Market Integration
Popular crypto platforms like Paxful accepting a new digital currency can increase legitimacy and demand for that cryptocurrency. These markets create exchange networks with easy-to-use features, making them popular among the participants. The more people start to buy and sell cryptocurrency, the more price value and popularity get influenced.
Political Events
Political events like USA elections can influence the price of fiat currency, the stock market, and other investment markets.
Competition
While bitcoin tends to be the most popular digital currency, there are 4000 other digital currencies, such as ETH and LTC, in circulation. The competition among different cryptocurrencies helps keep the price value of a digital currency intact.
Internal Governance
Since Bitcoin has no regulation of any singular authority, it allows cryptocurrency miners to process the crypto transaction and protect the blockchain. They can decide to make changes or tweak the bitcoin software through the consensus. It makes BTC users feel overwhelming while solving primary issues, especially scalability problems. BTC community is making an effort to speed up the number of the transaction the software can make. The implication of such changes can turn into a whole into other digital currencies, such as bitcoin gold.
Utility
The use case and utility of any cryptocurrency have a lot to do with its price value. If a new digital coin debut but does not offer any uses or solutions, no investor can retain an interest in that cryptocurrency in the long run. However, the crypto coin emerging with some new solutions or use cases is more likely to rise in demand and subsequent price.
Ethereum, for example, refers to a ledger technology that allows individuals to create new programs and benefit from the new opportunities that may emerge through its potential applications. Its token named ‘Ether’ let’s traders trade, run applications, and monetize work.