Do you know how prices of a cryptocurrency are impacted? The truth is the crypto market behaves very differently from the regular stock market and they are known to be volatile. While cryptocurrency may be the latest buzzword that has successfully got almost everyone hooked to news about cryptos, investing in it still remains tricky. This is because it is hard to predict price movements when you are dealing with cryptos. So, what are the factors that decide whether a crypto is successful or not?
Top Factors determining a Crypto’s success:
Just like regular currency, values of cryptos are dependent on a host of factors like user demand, coin scarcity, coin utility, etc. Most cryptos today are created by blockchain-driven companies and therefore their values also depend largely on the company image.
- Coin Utility: If a crypto has to succeed, it has to retain its utility. Cryptos have emerged as an alternation peer-to-peer payment system that is decentralized and digitalized. So, you have to ensure that cryptos continue to be usable in a blockchain environment. For instance, Ether, as a crypto, is dependent on the Ethereum platform for its use; it cannot be used on other platforms. Bitcoin is the pioneer of the cryptocurrencies. If you act in accordance with the information from Bitcoin buyers, attractive profits are almost assured. If you are not sure you can do a bitcoin buyer test which can be found on the internet to confirm the authenticity.
- Coin Scarcity: This can be best understood with Bitcoin which has a finite supply. There can only be 21 million Bitcoins and no more. Ideally, demand for cryptos should exceed their supply but this theory does not work with Bitcoins. With more and more coins being mined, and Bitcoin supply decreasing, values are rising higher and higher. Companies may use a burning mechanism to destroy a specific coin’s supply; the coin then becomes scarce and this raises its value.
- Market Cap: This has to be one of the most important factors that determine a cryptocurrency’s success. It is a direct indicator of a coin’s value and you can find out market cap by multiplying value of a particular crypto coin with its total supply.
- Project value: A coin’s success will also depend on the progress and viability of a project. You will find that new projects keep coming out vis-a-via exciting partnerships and they start creating software which is viable in the eyes of the market. These developments help to create a positive buzz about a crypto coin and, consequently affecting its value.
- Mass Adoption: A cryptocurrency’s value will obviously grow when more and more individuals or businesses start to embrace it as a medium of payment. Since cryptos are limited, this causes the demand to grow, and in turn, prices increase.
- Production costs: The costs of producing a crypto will also impact its value; for instance, Bitcoin production costs are extremely high. You need to invest in costly specialized equipment to mine Bitcoins and this is accompanied by huge power costs. Without spending so much energy into Bitcoin mining, you cannot guarantee transactions will be secure. Governments cannot discontinue Bitcoin blockchains and for this, you must pay a hefty price.
- Regulations: Finally, a crypto’s success and value will depend on government regulations. When Bitcoins gain mainstream adoption, the possibility of governments imposing specific regulations is bound to increase. More regulations means more centralization and this will invariably affect crypto prices.