The Main Factors Affecting The Value of a Cryptocurrency
What affects the value of a cryptocurrency? The first thing that comes to mind is the request. The higher the demand, the higher the price and vice versa. But when it comes to cryptocurrencies, there are several factors that influence how prices fluctuate, and in this article, we’ll take a closer look at them.
Whereas, in the cryptocurrency market, every investor in this volatile market has many mixed and sometimes opposite emotions. Between optimism and pessimism, fear and reassurance, reservation and adventure, joy and sadness, and between this rise and that decline, trading methods vary. Where will you find that there are those who follow their intuition without a scientific or cognitive basis in making the decision to buy or sell, in addition to that there are those who study and analyze various indicators in the world of technical analysis.
1. The number of nodes
A node is the intersection/connection point within the network. In an environment where all devices are accessible over the network, these devices are all nodes. The concept of nodes operates on many levels, but the big picture view defines nodes as the main centers through which internet traffic is usually routed. This usage is somewhat confusing, as these same internet nodes are also referred to as internet hubs.
Nodes help ensure that the integrity of information is not altered. If someone tries to retroactively mess with the Blockchain network, the modification will only appear in that node. The remaining nodes will show the “real” version of the Blockchain. This helps classify the network as decentralized since there is no central authority that can fully control the information that is stored on the Blockchain.
As the number of nodes shows the number of active wallets that are in the same network. You can easily find this information by doing a Google search or checking the cryptocurrency homepage.
But what is the significance of the number of nodes? First, it shows you how strong the community is. A high number of nodes is evidence of a strong community, and a strong community increases the chances of that digital currency surviving any potential crisis. Secondly, a large number of nodes can also indicate the strength and decentralization of the network, both of which are important factors when it comes to cryptography.
Note: You can check if the price of a cryptocurrency is favorable using the number of nodes. Take a look at the number of coin lots and total market capitalization and compare it to the most popular coin. Using this method is not entirely accurate due to the different network infrastructures, but it at least gives you an idea of how encryption works and how the number of nodes can affect the price.
2. Production cost
Production cost is another factor that affects the value of a cryptocurrency. Every day, many people during the mining process use specialized hardware or servers to generate new tokens and verify new network transactions. Where each one of them is rewarded with virtual tokens and network fees for the efforts made.
The miner’s network activity allows the decentralized cryptocurrency to continue operating. Therefore, if mining costs increase, the value of the cryptocurrency may also increase. It makes no sense for miners to spend their resources on mining for new coins if the rewards are not large enough to cover the expenses and turn a profit. However, this is not always the case and is not uniform across all cryptocurrencies, so be sure to do your research before committing to any of them.
3. Cryptocurrency exchange
If the token is available on a large number of cryptocurrency exchanges, it increases the number of people who buy and use that token. If you need two or more exchanges to swap any cryptocurrency token, you will pay a fee for each swap, which raises the investment cost.
4. Competition
The number of existing cryptocurrencies continues to rise, with new tokens being released every day. There are meme coins, soccer team coins, celebrity coins, and many more. There are also viable cryptocurrency projects among these new currencies that can overcome the current limitations and build a strong user network.
5. Government regulation
Some governments do not appreciate the decentralized and unregulated nature of cryptocurrencies, so they are actively searching for ways to control the crypto market.
The easiest way to control cryptocurrency is to set a tax on any fiat money that people use to cash out their coins. However, this tax will apply to select tokens, so people looking to cash out their winnings can simply use a different currency to withdraw it.
Many countries have decided that there is no better way to control the cryptocurrency market than by banning Bitcoin, Ethereum, and a few other digital currencies. Unfortunately, if a country with a large number of cryptocurrency users puts in new regulations against digital currency, it will negatively affect its value.
However, a few countries, such as Japan, are getting involved in Blockchain technology and are said to be developing a national cryptocurrency that will lead to more people using virtual tokens.
6. Scarcity
Theoretically, if there is a limited supply of cryptocurrencies, the price will go up as there are fewer cryptocurrencies available to buy. However, if 40% of the coins are in circulation and the remaining 60% are reserved, the price may drop when more coins become available to buyers.
Some cryptocurrency projects “copy” existing digital currencies by sending them to a non-refundable address within the Blockchain. In this way, the available supply is controlled.
7. Social networks
It is known that the value of cryptocurrency changes as a result of the hype on social networks. It works both ways, as the news will either lower or raise prices. There is also the effect that some influential people in the crypto community, such as Elon Musk, have affected the value of the DOGE coin several times, whether it be positive or negative.
Social networks are messy, but there is information to be found. For example, cryptocurrency exchanges are constantly giving updates about Blockchain currency or reporting cryptocurrency scams. Check out 6 useful strategies for staying safe when trading cryptocurrencies.
Cryptocurrency values are highly volatile
There are a lot of factors that affect the value of cryptocurrency, and there is no perfect way to predict it, which is why any financial expert will advise you to only invest money in cryptocurrency that you can afford to lose and always complete as much research as possible. before opening your wallet. You can now check out the best websites for tracking cryptocurrency statistics.