The Cryptocurrency sector is witnessing massive growth globally and it is attracting people from various segments of society, nowadays. What used to be the preferred domain of geeks and business tycoons has become the new favorite investment avenue for millions of people, including retired people and the millennials seeking additional income sources. While investing in the crypto sector can be beneficial, you have to do the research well and learn about the working mechanism of the sector. There is no denying the sector is affected by volatility and the price rise and fall of crypto coins can be rather unpredictable.
The nuances of cryptocurrency you must know
To understand why crypto coin prices rise and fall, you will need to know the basics of the sector. Cryptocurrencies are not like fiat currencies such as USD and INR. They are not under the regulation of any bank or govt backed financial entity as such. In most countries, Cryptocurrencies are not legalized yet. They are created through a distributed public ledger powered by Blockchain technology. The decentralized ledger is not under the control of any single entity. The transactions are secured by using cryptography and once recorded they cannot be altered.
The crypto coins like Bitcoin, Litecoin, and Ethereum can be purchased from various crypto exchanges and then the users can store these coins in software or hardware wallets. After buying cryptocurrencies with fiat money, you can trade them for other cryptocurrencies through these exchanges or platforms.
Factors that impact the price of crypto coins
There are a number of factors that can affect the price of any crypto coin. However, the price of a particular crypto coin is affected the most by demand. If the demand is more than the supply of a coin, its price is bound to go up and the opposite is also true. Crypto coins may or may not have a capping on maximum supply. Some crypto projects make use of burning existing tokens to limit the maximum supply and prevent inflation scenarios.
Often these factors are interlinked.
- Mass adoption- If a crypto coin is bought by a lot of users in a short span of time, its demand grows, resulting in a boost in its price.
- Utility- The first generation crypto coins including Bitcoin did not have additional utilities apart from serving as a means for making transactions. However, the newer generation crypto tokens are known for having additional utilities. They are either linked with tangible assets and have useful features. When the users become aware of additional utilities of such a coin, they may buy it in bulk and that can drive up the demand. This can result in a price hike.
- Activities of technology influencers- Since the crypto sector is in a growing stage and it is unpredictable, investors pay much importance to technology experts and icons who make statements on upcoming trends. One such example is the Tesla CEO –Elon Musk. He has shown interest in certain crypto coins and after each tweet, price of these coins surged or nosedived. It happened a number of times in the last few years.
- Support- Till now, crypto coins are not accepted at most places but the scene is changing slowly. You can find some online platforms and brands that accept crypto coins like Ethereum and Bitcoin. This is expected to grow in the coming days. As the acceptance of a certain crypto coin grows, its demand will go proportionately. This will result in enhanced adoption and its price will be affected.
How to find out if a crypto coin is priced reasonably or not?
The price of crypto coins can surge or diminish drastically, at times. To know if a crypto coin is priced reasonably, you have to analyze the node count. It denotes the number of active wallets on that Blockchain network. You can check the node count along with the total market cap of a crypto coin to figure out the feasibility of its price.