Cryptocurrencies are one of the most volatile investments. The big swings have skyrocketed some people’s finances beyond belief, and keep others in avoidance for fear of great loss. How is the pricing of crypto determined and influenced anyhow? Here are three big influences:
1. Supply and Demand
Some crypto, like Bitcoin, have a fixed supply which protects from inflation. Others do not and are subject to the same untamable free market forces. Supply increases with the production of new currency by mining and blockchain growth and the utility and faith in the power of crypto now and in the future is the dance with demand.
2. Cost of Production & Regulation
What it takes to create new crypto from the complex processes of mining and blockchain work is slow and expensive. People who commit to auditing crypto transactions are volunteers and they’re rewarded for their time and investments with crypto. As more miners come into the pool, the cost to do so becomes higher so the reward must rise to match the worthwhileness of the work. This may affect the price of crypto concerning the work behind the scenes as well as the transaction fees that may be associated with some.
3. Competition
Bitcoin set the tone of the crypto race, and since then thousands of different cryptocurrencies of different kinds have come to be. Creating a cryptocurrency is relatively simple, but the marketing and maintenance of such is a heavy commitment. Depending on the efficiency of the blockchain and the uniqueness of crypto that stands out, new cryptocurrencies may rise and naturally take value from their competitors.