How Is The Price Of A Cryptocurrency Determined

The cryptocurrency market is down, which is bad not only for leading currencies like bitcoin and ETH but also for almost every other crypto coin.

A cryptocurrency itself doesn’t have any standard rate or price since it is not regulated by any authority. The value of such a coin depends on the market. This is how the price of cryptocurrencies are determined.

Let’s find how does cryptocurrency gain value?

The main use of a crypto coin is to buy goods and services. So, a coin will be valuable as a unit of exchange. For example, you can purchase 1 gm of gold for 1 coin, and so on.

Cryptocurrencies hold value on behalf of other physical material/things and can be used to store such assets without needing any central bank or authority.

This is the main benefit of the use of cryptocurrencies. They do not require any central bank or person to govern the transactions or accounts of users. This is why they are more secure and easier to manage.

Let’s discuss the things that affect the price of cryptocurrencies or how is the price of a cryptocurrency determined:

How Do Cryptocurrencies Gain More Value?

Here are some factors that define the price of a cryptocurrency:

Supply and Demand

The number of total tokens released against the demand in the market will significantly affect the price of the coin. For example, if a company decides to release only 100 coins in the market, the coin will naturally have a high price because of the lower supply as compared to the demand.

The Complexity

The more features and secure blockchain a token has, the more complex it will be to mine it and the price will be higher.

Public Value

The value of cryptocurrencies is largely affected by what people think about it. For instance, when people started taking Bitcoin positively, its price increased and is still increasing. It all depends on whether your coin has the potential to provide any significant value to the public.

Media and ICO Marketing

The promotion of a crypto coin starts way before its actual launch. How much your coin is being talked about in the media, online news sites, press releases, etc, will highly impact its user demand and price.

Competition

Apart from the top few cryptocurrencies, almost all others are facing severe market competition leading to dilution of currencies that have no practical utilities. Your coin can survive and gain value only if it has something unique to offer.

Value against Bitcoin

When people first hear about a new cryptocurrency, the first thing they do is compare it to the price of Bitcoin. Bitcoin has become the reference currency for all other cryptocurrencies in the market. The growth (or fall) of bitcoin may therefore also affect the price of your own coin.

Legal issues

Ever since the launch of the very first cryptocurrency, this industry is facing legal battles from everywhere. Most of the governments are unwilling to allow digital currency since they are unregulated. If the government is not on your side, your coin may not gain the value it should have gained otherwise.

Energy Usage

Most of the cryptocurrencies in the market are based on the blockchain technology, and it takes a lot of energy to secure and run a blockchain. This energy also adds to the cost of the project and thus determines the value of the coin.

Applications

The real value of a crypto coin depends on how much it is usable and for what purposes. A coin that has no real-world applications will not attract many investors. This is why most of the digital currencies today are backed by a range of applications, such as payments, exchange, and investment.

Investors

Investors, especially the big ones, have the power to manipulate the price/demand of the new cryptocurrencies. By purchasing a lot of cryptocurrencies and/or promoting good things about them, they can positively affect the prices.

Innovation

If you are planning to develop a clone to bitcoin or any other popular cryptocurrency, do not expect people to show interest in it. Only if your coin/concept is appealing and innovative enough, it will gain value in the market. See the example of KCH coin. They have developed a token backed by a unique and powerful social media mobile payment app that will actually have real-world applications.

The price and value of a digital token depend largely on the factors mentioned above. Even though the initial price is defined by the launching company, the growth in the rate will depend on the uniqueness and cost-effectiveness of the coin.