The Rise And Fall Of Cryptocurrencies
Market capitalization for cryptocurrencies has risen significantly over the past few years and is currently approaching $1 trillion. The rise in cryptocurrency market capitalization is mainly owed to Bitcoin, which is going through a massive bull run at the moment. At the time of writing this article, the price of Ether and Bitcoin had crossed to around $60k and $1,800 as of early January. However, as of writing this post, both coins have crossed to around $65,000 and $1,800, respectively. A 90-day increase occurred within this time frame.
Other cryptocurrencies have risen in the past and are now declining, as well. Ripple (XRP)’s price dropped to 0.023 from $0.2977 as of September 2020, for example. After recovering slightly, it reached $0.25. As compared to its price of $0.33 on February 14, this is a substantial increase.
There has been so much speculation as to what could be at the root of cryptocurrency surges and dips.
The following list summarizes some factors that influence their price and why they change. Most of what determines the price of bitcoins and other cryptocurrencies can be summarized into two key economic principles.
Supply and demand!!Â
Bitcoin is the most popular type of crypto. Supply and demand determine how bitcoins are valued. Supply and demand are important factors in determining Bitcoin’s price. The current cap on bitcoins is 21 million. Bitcoin mining will cease to produce new bitcoins when the cap is reached. In January of 2017, 16.8 million Bitcoins were mined, meaning that nearly 80% of the total supply had already been distributed. A price increase occurs when the demand does not keep up with the supply, as we know from economics.
Two types of factors that can affect Supply and Demand:
Internal Factors
Traders
A person who actively trades cryptocurrency can greatly influence a currency’s price. Trading options for middle traders are determined by major traders’ decisions. The major traders, subject to appropriate conditions, try to manage the price fluctuations using market tools.
Different cryptos influence each other
Whenever the price of bitcoin rises, the price of altcoins also drops in value, and they are cheated further compared to BTC. Whenever the price of bitcoin increases, altcoin funds are pushed into bitcoin. Altcoins that have strong support are likely to hold their positions in such events.
External Factors
Global Adaptation
It is possible that demand for crypto could grow as stores, companies, and people slowly begin to accept crypto as payment. In the case of more people rejecting it, the opposite occurs.
Crypto software updates
SegWit, popularly known as Segregated Witness, is a good example of this. Bitcoin’s price doubled when SegWit was activated.
Media and influence
Cryptocurrency prices can be affected by insights from influential figures, whether positive or negative.
Integration of the trade markets
The legitimacy of a new cryptocurrency rises when popular platforms like Paxful accept it, and consequently so does the demand for it. In response to the popularity of these exchanges, networks are created through these marketplaces. There are more participants as a result. By increasing the number of people buying and selling Bitcoin, it has a direct effect on the price.
Events in politics
As a result of major news like China’s ban on ICOs and the closure of domestic exchanges, prices can fall sharply.
Competition in the market
There are more than 1000 varieties of cryptocurrencies out there, although Bitcoin is considered to be the most popular. Litecoin and Ethereum are examples of other cryptocurrencies. Investments remain valuable when there is competition. Taking the U.S. dollar as an example. Strong currencies such as the Euro, Yen, or Pound would not exist, so the Dollar’s value would have been different.
Governance of its own
Considering Bitcoin has no centralized authority, miners are put in charge of processing transactions and securing the blockchain. If they wanted to change or tweak the software, the decision has to come from a consensus. Due to this, members of the Bitcoin community believe that there is too much time involved when it comes to solving fundamental issues, particularly the issue of scalability.
For its popularity, Bitcoin is currently able to only process around three transactions per second. Currently, the community is working on accelerating transactions. When these changes are made, the coins become a completely different cryptocurrency. Bitcoin gold and bitcoin cash are examples of this. It occurs that, as a result of investors’ decisions, new currencies aren’t as valuable as Bitcoin.
The utility sector
Cryptocurrencies’ utility is a major influence on their price, as with any good or service. The longer a crypto-currency remains unattractive to investors because it offers no new benefits or solutions, the less interest it will generate. As long as it is useful and offers something new, demand will rise.
In contrast to Bitcoin, Ethereum offered a new form of currency with unique features. In comparison to Bitcoin, Ethereum has a much broader application and can be used to develop programs and new programs. The token is called Ether. Ether is used for trading. In addition to being used outside of Ethereum, it is sometimes used within it to run applications.
Bitcoin’s price
Among all cryptocurrencies, Bitcoin is king. All other cryptocurrencies will be affected by what happens to them. Bitcoin’s price changes lead to a rise in the crypto market, and vice versa when its price drops. Why would investors even invest in other cryptocurrencies if the top-ranked cryptocurrency is doing poorly?
Bitcoin, like other cryptocurrencies, can also be exchanged for other coins on most crypto exchanges. Bitcoin is the benchmark for all other cryptocurrencies, so their prices are also heavily reliant on it.
Security
Since bitcoin has no authority figure, like fiat money, which is protected by armed guards, there is no one authoritative figure in charge. Cryptocurrency prices may also be affected greatly by cybersecurity. In 2014, a well-known hack occurred on Mt. Gox, where they lost $750,000 worth of bitcoins (that amount was then $470 million). Around 36 percent of bitcoin was lost as a result of the incident. Considering the costs of robbery, hacking, and heists in regular banks, the possibility is also high. The only thing you need to do is educate yourself about how to protect your money, regardless of whether it is online or not.
