Factors That Impact the Price of Crypto
2021 was a major year for cryptocurrencies because Bitcoin has entered a bull market phase, but other altcoins followed its rise to prominence, and they have achieved record-breaking prices. Moreover, there is huge attention regarding crypto investments, and that’s why many people who want to invest in crypto are curious about the essential factors that drive the price of cryptocurrencies.
Demand and Supply
As most cryptocurrencies are created as a decentralized virtual currency, it means that they are not created to be controlled by any government, more specifically, fiscal and monetary policies.
In other words, decentralized cryptocurrencies are only impacted by the supply and demand on the crypto market. However, there are some cryptocurrencies created by governments like the e-Yuan, and there, we can notice that there are other factors that have an impact on the price of the currency. However, the overall market demand and supply will always be an essential factor in the trajectory of the value of cryptocurrencies.
When it comes to the supply of a cryptocurrency, most virtual currencies have a pre-established number of crypto tokens. This limit can be set annually (Ethereum, for example, has set a yearly limit of 18 million), or there can be a maximum number of crypto tokens that can ever be generated (for Bitcoin, for instance, that limit is 21 million BTC).
But, they are not all available on the crypto market at once. Actually, through the mining process, new crypto tokens are introduced to the crypto market. More specifically, Bitcoin has a stable rate at which new Bitcoin tokens are created on the network of 10 minutes. This is the time generally required for one block of transactions to be processed on the network.
On the other hand, demand is fuelled by the number of investors, including retail, institutional investors that are making investments in that cryptocurrency, and also businesses that accept crypto payments.
Online trading platforms are the marketplaces where the price of the cryptocurrency is set based on the relationship of the crypto demand and supply. One great trading site is Bitcoin Power which is based on artificial intelligence technology, and it creates a safe and transparent trading environment because they only work with top brokers. Hence you can track your investments anytime, and because this is a mobile-friendly site, you can trade on the move. You need a deposit of $250 in order to trade here.
The popularity of cryptocurrencies is also noticeable for a lot of countries that want to leverage the potential they offer. For this purpose, they put regulations in place in order to make it easier for people to invest in crypto or for businesses to accept crypto transactions.
If they make it easier for investors to trade on the crypto market, this also will positively impact the demand for crypto. But, if a country has put restrictions in place that hinder the possibility of crypto trading, this also can have a negative effect on the crypto market.
Institutional and Business Support
As we mentioned earlier, there are businesses and institutional investors who are making huge investments in crypto. As the crypto market is still relatively new compared to other financial markets, significant events on the crypto market have a great effect on other cryptocurrencies.
This is why when businesses like PayPal, Venmo, Whole Foods accept crypto payments, they increase the mass adoption of cryptocurrencies. Additionally, there is a rise in the price of cryptocurrencies in general because the demand is exceeding the supply.
Otherwise, accredited institutional investors also drive the demand for cryptocurrencies because there are investors who can make great crypto investments and change the trajectory of the price of certain virtual currencies. Overall, the main factors that can change the price of a cryptocurrency are events that have an effect on the supply and demand of the market.