You’ve seen the headlines and you’ve read the analyses, but do you know what is behind the cryptocurrency fluctuations of price? While FIAT currency is regulated by central governments who control the monetary supply (and thereby the inflation), cryptocurrency is decentralised and its price fluctuations are based on other factors.
Considered one of the most important determinants in the cryptocurrency fluctuations of price: supply and demand. The price of cryptocurrencies will always be driven by its availability – the scarcer a coin, the higher its value. Cryptocurrencies that have a large supply generally tend to have lower price levels.
As the regulatory laws try to keep up with the mass adoption of cryptocurrencies, we’ve seen several governments prohibit the trade of digital assets. In April 2017, Japan announced that it was legalising Bitcoin and the price immediately increased. By contrast, in February 2018, when China announced that it was blocking all crypto-related trading websites in February 2018, Bitcoin and Ethereum prices both suffered a dramatic drop.
A strong contender on the price of a cryptocurrency is its utility. Does the coin facilitate a function in that the platform is solving a real world problem, or is it merely a name with no practical use? This is often reflected in the market price levels, lower utility means lower market price. For example, Ether has a higher market value than other altcoins as it has a strong practical use – enabling developers to build and launch their own decentralised applications (dApps) on the Ethereum platform.
Positive or negative publicity can affect general market sentiment towards a cryptocoin. Cryptocurrency prices are heavily influenced by human emotion and hype, for instance if there is a story in the press about a network hack the price is likely to drop, but if there is an article about mass adoption, a price are likely to go up.
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