Whether you are new to cryptocurrency or husband investing for a while there is one thing everybody knows: the market is highly volatile. The more popular currencies see somewhat of a stable market value while the others are susceptible to significant price fluctuations. The value of a cryptocurrency is dependent on multiple factors, all of which are important.
The primary thing one needs to understand is that all the cryptocurrencies are decentralized and are not sanctioned by any central authority. Apart from the decentralization, there are many other factors that directly impact the price of a cryptocurrency to go up and down.
The Coins in Circulation
The supply and demand directly impacts the market value of cryptocurrency. It is not difficult to understand the supply and demand concept because it extends beyond the digital world of blockchain networks. It simply means that if any acid is available in a limited quantity when its demand is continuously increasing, the prices are likely to go up. Know more about the market trends at okx.com.
So if there is a higher demand than the supply the market value increases. Typically, different cryptocurrencies deal with the supply and demand mechanism in different ways. For instance, when we talk of Bitcoin, there are a limited number of coins circulating in the market currently. This means that the supply is less than the demand which impacts the price.
Moreover, there are only a finite number of Bitcoins left to mine. For cryptocurrencies that do not have a finite number of coins, the burning system comes into play. Certain platforms burn a number of coins in circulation so that there are only a certain number of units in circulation at any given point. Digital currencies bank on the scarcity of their coins to increase the price. The supply in decentralized finance needs to be managed accordingly.
The Costs of Production
The cost of production or mining a cryptocurrency also impacts the price of a digital currency and causes it to go up or down. The mining process involves using expensive equipment to mine the coins on a blockchain network. Decentralization plays a big role in the mining industry.
The mining involves the use of expensive hardware along with a lot of consumption of energy. The bill therefore amounts to not only the labor costs but also the added expenses of the mining equipment. There is no shortage of competition in the mining industry which also increases the cost of production.
The more an investor has to pay for buying a coin the more likely it is for the price of a cryptocurrency to rise. If we take the example of Bitcoin the mining process is extremely expensive in terms of both time and resources. Undoubtedly, the cost of production is a big reason why Bitcoin is one of the most significant cryptocurrency in the market currently.
The reason why the production cost has to be a factor then with the market value of a digital currency is because the mining of one coin should pay enough for the miners to get a profit for their services. If the cryptocurrency does not have enough value for a miner to invest their time, its price will automatically be lower than that of the popular alternatives.
The Market Capitalization
Market capitalization is another important way in which the price fluctuations of different cryptocurrency can be analyzed. The market capitalization of a particular cryptocurrency depends on the price of one coin and the total number of coins currently in circulation. The product of both of these values amounts to the market cap of a particular cryptocurrency.
The reason why one witnesses a significant price fluctuation for digital currencies is because the amount of coins in circulation keeps going up and down. Additionally, the price of one coin also is highly volatile depending on the supply and demand mechanism.
The market capitalisation has to factor in both of these aspects. Even if a particular cryptocurrency has a higher value the market capitalisation will still depend on the number of coins in supply. If a digital currency has low amounts of coin and circulation but a higher value per piece, it still will have a lower market cap then a currency which has a larger number of coins in circulation even if the value of a particular coin is less than that of the former.
Engagement of the Masses
How many people are engaged in a particular community also determines how its price will fluctuate in the market. The engagement of people can be determined with the help of the node count. The node count signifies the amount of people that are currently active on a particular cryptocurrency platform.
The higher the node count, the stronger the community of investors on any particular platform. The engagement of the investors with a particular cryptocurrency will let anyone know if the market capitalisation is valid. A node count can be checked on a cryptocurrency website. One of the best way to compare different paper currencies is by looking at the node count and the market cap to make investment decisions.
Apart from the general engagement, one also needs to see how many people are using it as their primary means of digital transaction. If more and more investors use a crypto platform as their main means of transactions and exchanges, the market value of that cryptocurrency will go up in light of the high demand.
The Takeaway
All of these factors combine to significantly affect cryptocurrency to go up and down. The price volatility is also directly related to supply and demand factors as well as the costs of production. Additionally, the price volatility is also dependent on how many people are engaged on the digital currency platform at any given time. The node count helps investors determine whether the price of a cryptocurrency is likely to go up or down in the future or not.
