Cryptocurrency reserves the potential to grow into a critical financial asset if wielded rightly. And this will be possible upon proper education and honest guidance of the masses.

May 2018 was witness to the rise of the two largest cryptocurrencies. When measured in terms of market capitalization, they had a combined market value of 160.9 billion dollars. Of this, Bitcoin alone made up for nearly $115 billion of this value.

The soaring value of digital currencies has a section of people identify value in them through use as actual currencies, while others view them as investment opportunities.

Also Read: Contributions of Central Banks in the Foreign Exchange Market

This has resulted in swings in the value of both currencies over short intervals of time. In 2017 the value of Bitcoin scaled 2000% swinging from $863 on January 9, 2017, to a peak at $17,550 on December 11, 2017. Eight weeks later, on February 5, 2018, the price of a single Bitcoin had been more than halved with a value of $7,9643.

The promise of blockchain technology, adds to the probability that cryptocurrencies will continue to be used in some capacity. Also, guaranteeing that their applications will serve to solve transaction and payment-related problems.

How is the Price of Cryptocurrency Determined?

Simply put, the price of cryptocurrency is governed by the market in which it trades. To elaborate, its price is determined by the amount someone is willing to pay for that crypto. The market fixes the price of crypto just as it does to any other commodity of value or utility. Crypto, like any other market, is subject to the rules of supply and demand.

It is important to note that all crypto are finite in the count. When the demand goes up with fewer coins available, the price goes up. Similarly, when the demand lessens with a higher number of coins in circulation, the price goes down.

Factors That Influence the Price of Cryptocurrency

There is a long list of factors that determine or affect the price of crypto. Most of the factors discussed below fall under the broad category of sentiment analysis.

Blockchain Technology

The use cases of blockchain technology go above and beyond peer-to-peer payment systems. Blockchain technology brings in security, privacy, and a distributed ledger which makes it the best fit for internet-of-things, distributed storage systems, healthcare, and more.

The range of applications riding on the blockchain has led to many more blockchains and cryptocurrencies being created (over 4000 cryptocurrencies are in existence).

Inflation

Although cryptocurrency was designed to be used as a wedge against inflation, one cannot deny its critical impact on the value of the digital currency. Also, the philosophy may be implemented only when all or a huge majority of any population holds crypto as an investment. This is not the case due to the exorbitantly high price of Bitcoin. Moreover, the value of a sovereign currency is maintained by state-designated authorities who would take all possible measures to suppress the cryptocurrency from overriding the fiat.

Cost of Mining Cryptocurrency

The cost of mining crypto like Bitcoin is huge. Cryptocurrencies are bound to the blockchain to provide the incentive for machines, and the electricity they consume, to run and validate the blockchain. With the increase in the use of blockchain so will the use of cryptocurrencies. This gives them an inherent value.

Social Media Discussion Groups

Messages posted via social media and micro-blogging sites reach the audience faster than news media. They are also considered a more credible source of information as the people who post them are commoners in most cases and not tied to a higher house of commerce.

Such platforms enable individual crypto enthusiasts to come together to share their views, discuss and address their concerns.

These platforms often allow open or closed group discussions, this provides much insight into individual and general perception and interpretation of an event. This often leads to a positive outcome.

Micro-Blogging by Celebrity Entrepreneurs

Micro-blogging sites are used by common people as well as celebrity entrepreneurs, influencers, and financial analysts. Statements made by the well-known and the well-attributed figures in the field amount to a stronger influence on commoners.

Some of these personalities often use their social standing to make motive-driven statements, thereby, driving people to panic and make hasty investment decisions. This also causes wild fluctuations in the price of cryptocurrencies.

Also Read: PayBito Gains Clients Intending to Harness Its Forex Broker Solutions in Australia

Finally

While cryptocurrency has taken on a portion of the market by storm, it is still a young concept and is mostly moved through words of mouth. People need to be adequately educated to properly understand the functioning of digital currency. In doing so, they will know better than to fall for agenda-driven statements of alleged experts and gain more on their holdings.

Cryptocurrency reserves the potential to grow into a critical financial asset if wielded rightly. And this will be possible upon proper education and honest guidance of the masses.

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