What affects cryptocurrency prices? | Alexa Blockchain

It can be very interesting to observe the state of the cryptocurrency industry, especially as an outsider. On the one hand, we cannot necessarily see or touch cryptocurrency assets. On the other hand, these digital assets can be worth millions of dollars and drive entire sectors.

As Kane Pepi points out, if you are investing where price is a key factor, you can find a lot of cheap tokens on the market. If you are in a financial environment where you can invest more money, there are tokens that can cost thousands of dollars. So what makes cryptocurrencies cheap or expensive, and what drives these price changes? This article analyzes this.

supply and demand

One of the biggest factors affecting the price of a cryptocurrency is the supply and demand for its tokens. It is a classic rule of the markets that the value of an asset increases when supply is less than demand, and this also applies to the cryptocurrency space. If you take a look at the blockchain project’s whitepaper (essentially a manifesto), you can see the team’s plans regarding launching tokens on the market for supply management.

For example, in the case of Bitcoin, the amount of tokens issued per block is strategically halved approximately every four years. This decrease in supply has been linked to a surge in the value of Bitcoin and its adoption by other cryptocurrencies as well. On the demand side, there are several factors that can drive demand for a token, particularly its utility.

For example, tokens like Solana are in high demand in online casinos, purchasing goods and services, DeFi space, etc. The more demand for a token, the higher its price. Therefore, the reason the token price goes up is because demand also increases.

Another factor that affects cryptocurrency prices is media coverage of the cryptocurrency, its founders, and the underlying project. It is not uncommon for the media to influence investor decisions, and the cryptocurrency industry is seeing the same effect.

The media often speculates about possible changes in token prices, which could trigger a bearish or bullish market. For example, if the media says that a particular token is the next big thing, people will rush out and buy it, which drives the price up. Media reports of whales buying many token units or selling them in large quantities can also cause price fluctuations. The same applies when the media reports negatively about the token.

Reporting to management should also be considered. For example, when former Binance CEO Changpeng Zhao was arrested last year, the price of the native BNB token fell. Celebrity attention can also increase the value of a token, as seen in the example of Dogecoin and how its profile (and price) rose after Elon Musk showed interest in the meme coin. By now, it is clear that media coverage can make or break a cryptocurrency token.

regulatory developments

The cryptocurrency sector is a relatively new one, which means it will inevitably come face to face with regulators around the world. And the effects of this regulatory melee are reflected in the token price. For example, when Ripple Labs won its lawsuit with the SEC, the price of the native XRP token soared. In the market’s view, the court ruling was indicative of the quality of the project, so they rushed to purchase tokens.

When the SEC approved a spot Bitcoin ETF earlier this year, it triggered a massive price surge for the token, which eventually pushed Bitcoin to new all-time highs. The past few years have seen many regulatory victories for the industry around the world, including the passage of cryptocurrency advocacy laws and the acceptance of cryptocurrencies as fiat currencies in some countries. Typically, a particular token or the market as a whole is on the rise.

There are also effects that are felt when there are negative regulatory developments. Whenever the SEC announces that it is suing a cryptocurrency company or investigating a cryptocurrency venture, the markets tend to reflect this. For better or worse, regulatory developments impact the cryptocurrency scene.

Related benefits

Many cryptocurrencies provide value to customers not only for themselves but also for the benefits that come with them. For example, Metaverse and GameFi projects often have native tokens attached, and as these projects become more popular, the value of the attached tokens also increases.

This is also true for tokens where the underlying blockchain is widely used. For example, Ethereum is widely used in DeFi, NFT, GameFi, etc. The more the blockchain is used for various purposes, the more demand there is for its native token, Ether, which increases demand.

Utility tokens also enjoy price surges due to the associated benefits. For example, fan tokens for sports clubs have surged. These tokens are often used to unlock various benefits such as VIP sections, early access to tickets, meet athletes, and more. These tokens have now become a popular commodity among sports fans, and the value of the associated benefits is reflected in their market price.

As the cryptocurrency space develops more, people will come up with more creative uses for their tokens, whether they are used to facilitate fractional investments or provide access to exclusive experiences. This means that the market value of the token will continue to increase.

Pump and Dump and Other Scams

Unfortunately, not all cryptocurrency price movements are organic or driven by true market forces. As an investor, it is important to know the concept of pump-and-dumps. This is a situation where token creators artificially increase the price to trick investors out of their money.

How this works is that a token is released to the market and creators buy a large amount at once to drive the price up. Investors who don’t know this trick buy tokens at inflated prices to cash in on the development. When creators resell their tokens at this high price, they abandon investors with worthless tokens.

The token’s growth was inorganic and had no real value, so its price plummeted. This is similar to other cryptocurrency scams, such as Poopcoin, which trick people into buying tokens (usually at inflated prices), causing prices to rise and fall.

That’s why, as an investor, it’s important to research each token you’re considering and find out if the price is organic or manipulated.

conclusion
Cryptocurrency prices are a source of endless fascination for both inside and outside the industry. It is important to know the mechanisms that affect token prices in order to know what to look out for and how to spot real and inorganic price movements.

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