Seven factors that influence the price of a cryptocurrency.
Hello everyone on Steemit! Seeing as we all are currently taking part in a cryptocurrency based application, I thought my first article would be on cryptos. In my opinion (and those of a few other articles I've read) there are 7 major factors that influence the price of a crypto and I believe that they should be kept in mind at times when deciding whether to buy or sell a coin. The seven factors are:
- Supply and demand
- Energy required for POW
- Ease of use
- Public opinion
- Bitcoin price
- Issues in the media
- Innovation the coin brings
1: Supply and demand is probably the most important factor but it's also the easiest to understand. Simply put, there is a limited amount of coins for most cryptocoins and so if supply is fixed and demand keeps going up (as it is with BTC and others) the price rises. This is why we want mass adoption of the coins we are invested in as the more people trying to buy, the higher the price goes.
2: For cryptos with POW algorithms the price can also be dictated by the cost to keep the blockchain running. There are claims that the Bitcoin blockchain requires the power of a small country to keep it running. The more effort put into securing the blockchain the safer it is (which is good) and this should also mean it has more users on the platform (#1). For those cryptos using POS or other methods of securing the blockchain, I don't know whether their algos affect the price as much or at all. I would love to hear from someone more knowledgeable on that topic.
4: Public opinion of a coin is extremely important as if people believe that a coin is about to tank they will either sell what they are holding or won't buy into the coin. By selling or not buying they are causing the price of the coin to tank just as they expected, but it's happening partly because of their actions. The same scenario works in reverse as seen recently with Bitcoin where people knew the price was about to rise and so more and more people began to buy into it (causing the price to rise more). Once the price increased significantly, it seems people have begun to sell more locking the price below 3000 (no moon for BTC any time soon).
5: The price of most cryptos seem to be related in some way to the price of BTC. The relationship is much stronger when BTC goes down as people use the price of BTC as a gauge on how the crypto market is doing. When BTC goes up, most altcoins tend to follow it for the same reason although the growth is usually less. One of the few coins that seems to be detached from BTC is DigiByte which is an insanely cheap alternative to Bitcoin (using its own wallet and blockchain of course...). DGB is quite volatile but always seems to be going up and so I'd consider it a save investment alongside other cryptos so that when BTC goes down you don't lose as much.
6: Issues in the media is a much smaller factor regarding the price and only really matters when the media is reporting huge issues concerning a coin. Large hacks will hurt a coin while deals with popular companies will cause a huge growth in the coin. We haven't seen the full effect the media can have on coins but I imagine the media will be a great tool when certain coins start to head towards mass adoption.
7: The final factor is the innovation the coin brings. Coins that have an actual use that is innovative do much better than coins that are just attempting to be another bitcoin or are trying to run away with ICO money. Steem will do great in this category with its ingenious concept, and other coins such as Golem, Opus, and BAT cover their own niche fields. This factor only matters for those that are holding the coin or have faith in the coin and not so much to people purely using altcoins to make money trading (as they would only care about price whether or not the coin is actually useful).
I hope this article was helpful for some people, and helps those newer to crypto learn about what actually determines the price of a crypto. I would love to hear feedback on both the content and my writing as I have never been the best writer and am certainly no professional crypto trader.