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What Determines the Price of Cryptocurrency

what determines the price of cryptocurrency

What determines the price of cryptocurrency can be summed up by understanding the terms price and value.

Price and value are different things. Value is the perceived worth something has. This is entirely subjective and is driven by simple supply and demand.

The higher the supply of any asset, the lower the demand will be, and this is directly proportional to its value.

Price, on the other hand, is reflected in numbers and is driven by value. The price is the final cost for a product depending on how people value it.

So, first you have the value of an asset, and that will set the price.

Cryptocurrencies operate similarly, and prices fluctuate with value just as with any asset or fiat currency.

However, before we establish what determines the price of a cryptocurrency specifically, we need to understand what determines the value of a currency in the traditional sense.

How Is Money Valued?

Since the beginning, money’s value was set through a political agreement where the state would determine the value of each unit according to the country’s reserves.

Then the central bank would print the units according to this pre-established percentage, giving each person ownership over said reserves.

However, money has another critical factor when it comes to its value: how people perceive it.

So, today, we have money circulating that has a value (and a price, when exchanged) that could be nowhere near the intended value. 

Money is just as symbolic and as useful as people accept it to be.

How are Cryptocurrencies Valued?

Since cryptocurrencies can be compared to money, some more than others, then their valued and subsequent price is determined in much the same way as currencies are now.

what determines the price of cryptocurrency

Therefore, its perceived usefulness depends on how accepted it is.

Because their valuation follows similar rules to that of fiat currencies, then the deciding factors for their acceptance, value, and price are:

  1. Features.

The main difference between crypto and fiat currencies is that the former isn’t backed by any form of government or physical asset.

However, another difference is that cryptocurrencies are based on blockchain technology which allows for each cryptocoin to have its own characteristics.

Cryptocurrencies that offer more privacy, faster transactions, and these kinds of features are more likely to be priced higher.

  1. Hashrate.

The rate at which each block is mined determines how quickly transactions are confirmed. Since this comes with the migration of miners, it increases the demand and use of any cryptocurrency.

An example of this is Bitcoin Cash, whose price escalated once miners started growing its hashrate.

  1. Establishment.

This is the last deciding factor in how well-established one cryptocurrency is. At this point it is considered one of the most important.

Being the first cryptocurrency, and thus the most popular is the main reason Bitcoin is worth more than other altcoins that actually offer more privacy, quicker transactions, and more applications.

That, however, will be a less influential factor as cryptocurrencies are better established around the world.

Conclusion

What determines the price of a cryptocurrency I believe will evolve over time as we move forward in this new digital currency world.

Right now we are in the infant stages of cryptocurrencies. As time passes the prices should fluctuate based on more stable factors besides the fact that it is newly established.

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