How is the price of cryptocurrencies determined?

7 min read

The market of the cryptocurrencies is vast and complex, there are approximately 5.392 cryptocurrencies being traded and more and more are added every day, so there is no easy way to say how the price of cryptocurrencies.

First, we need to answer some questions before we can fully understand how the price of cryptocurrencies is determined?

How do cryptocurrency prices compare to fiat currencies?

Before comparing them, we need to understand what is a crypto currency and what is fiat currency. The cryptocurrency it’s a digital or virtual currency that is secured by cryptography, which makes it impossible to double-spend. Many cryptos are decentralized networks based on blockchain technology. On the other hand, fiat money it’s a currency established as money, often by government regulation. This currency isn’t backed by gold and does not have any intrinsic value. The U.S dollar is an example of fiat money.

In summary fiat currency is a physical medium of exchange, monetary reserves control the supply of money, it’s a centralized and monitored by the governments, there are unlimited supplies of this kind of money. Cryptocurrencies are not controlled by a central government or authority, and most countries do not accept them. Cryptocurrencies will have a cap in the amount that can exist at the same time, this is why a cryptocurrency is devalued due to inflation in its majority, it cannot be.

We could say that these are their main differences, the rest are practically the same, the two have similar characteristics, as they can be used to buy goods or services and that both have a value in the market, one more volatile than the other.

For now, there is no cryptocurrency that has overthrown a fiat anywhere in the world. At the moment we have apps that use cryptos as a means of payment in selected establishments.

What are the biggest determinants of cryptocurrency prices?

The price of the cryptocurrencies is determined by the market of buyer’s and seller’s, according to the supply and demand that exists. The rise is linked to the scarcity element   of a crypto, the fewer crypto there are for sale, the price inflates (Demand), when many people sell their crypto the price tends to go down (Supply).

The price of the crypto also tends to go up or down depending on what is read on web pages, news or even from colleagues who recommend you to invest or not in a crypto, when u see an increase in  the news of how good it would be to invest or not in a crypto can produce a rise or fall of said crypto. This shows that the price of the crypto is easily influenced by the pressure exerted on us by web pages, news or friends.

The hacker’s attacks are another way that determines the prices if there is a news about a hack or a security breach in the market are likely to drive prices down.

The market will respond immediately, and the steps to take will be published to take action in the face of this adversity, this will be what determines if this market will fall or remain.

A curious fact about bitcoins is that they have a maximum cap of 21 million tokens that can exist at the same time, when this number of tokens is reached, bitcoin mining activities will not be able to create new ones.

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Why do we see so much fluctuation in cryptocurrency prices?

The crypto market is considered to be still a bit new, far from the only thing they have heard about this would be the word bitcoin, and not knowing anything about what a cryptocurrency is or its advantages as a non-centralized currency.

This is also due to the fact that the market moves very fast and therefore increases the volatility of the prices of cryptocurrencies.

Every day more people join the cryptocurrency market, this creates a greater demand in the market day by day, many of these users are interested in crypto whether their price rises or falls, because they may or may not have prior knowledge of how the market works, which makes it have a greater increase in price fluctuation.

The manipulation of prices in new currencies. These newly added coins to a crypto trading platform can be artificially manipulated in their final price, which will be the one that will open to trade, which encourages large quantities to be bought or sold.

The manipulation of a currency can be aggravated if thousands of participants, whether new or not, are added to this, which can be easily taken advantage of, which could cause that in minutes of a newborn coin could be in the sky and the next minute could be easily on the floor. Furthermore, these manipulations can be difficult to prove in unreliable markets.

Large trading markets also provide a single weak point. The management and storage of a large amount of cryptocurrency, what makes them a target to hackers and if they meet their goal of infiltrating the databases of these markets, this can have a devastating effect on the price of cryptocurrencies

How accurate are cryptocurrency price predictions?

Like all traditional markets, there is no guarantee when it comes to predicting the future price for the cryptocurrency market.

Those who try to predict the price in the future are normally on the edge of prices either very high or well below.

This leaves a lot to think about cryptocurrency price predictions and they should be taken with great care, although there are certain factors that can influence a future price, a large investment of money in a cryptocurrency or a large number of cryptos being mined which would create a great offer, u could investigate the market for weeks and in one second a hacker can come and drop the price, since predicting in such a volatile market is almost impossible to the point of being the same as predicting lottery numbers u could try u luck. But don’t risk what you are not willing to lose.