Cryptocurrency is digital money that is secured through cryptography and is nearly impossible to duplicate or double spend. When it comes to the question of what affects the value of this digital money, the most obvious answer is “demand”. But there are numerous other factors that can influence cryptocurrency prices.

Six Factors That Affect Crypto Prices

1. Node Counts

One way to determine how healthy a cryptocurrency network is, is to check its node count. This figure can be accessed by doing a simple Google search or by visiting the currency’s home page. Node counts reveal how active a coin is and the more active it is, the higher the chances it will survive any crisis. Additionally, you can compare a currency’s market capitalization with its node count to see the effect on its price.

2. Production Costs

Production costs of cryptocurrency can have a big impact on its value. Miners use specialized hardware and servers to create new tokens or validate network transactions, and as a reward for their efforts, they are paid a network fee. This activity of the mining network allows the currency to continue being used. If the cost of mining increases, the value of the cryptocurrency can also increase, however, if rewards from mining are too small to cover the costs, miners may not have the financial resources to mine new tokens.

Also read: Tokenization: What is it?

3. Cryptocurrency Exchanges

The most popular cryptocurrencies such as Bitcoin and Ethereum can be traded on a number of exchanges. However, access to certain tokens may be limited on some exchanges. If a wallet provider aggregates quotes across multiple exchanges in order to trade a pool of tokens, the investment cost will increase. If a currency can be traded on multiple exchanges, its demand increases, thus pushing up its price.

4. Government Regulation

The decentralized and unregulated nature of cryptocurrency can be off-putting for some governments, and so they seek to regulate it. One way to do this is by imposing a tax on any fiat money used to withdraw cryptocurrency. This would not apply to all tokens, but it could still have a negative effect on the value of a currency. On the other hand, some countries are looking into using blockchain technology and creating their own national cryptocurrency, which could encourage more people to use digital tokens.

5. Social Networks

It’s no secret that social media can have a big impact on crypto prices. Influential members of the crypto community, such as Elon Musk, have had a direct or indirect influence on the value of a currency, both consciously and subconsciously. Despite the chaos, there is valuable information to be found on social networks. For example, cryptocurrency exchanges often post information and updates on their blockchain currency.

6. Competition

With more than 13,000 digital tokens available, competition between cryptocurrencies is high. It’s relatively easy to launch a new cryptocurrency, but it is difficult to keep it running as a network must be established for users to be able to use it. If a new currency can make money and grow quickly, it can easily overtake an existing one and cause its value to drop.

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