How Cryptocurrency Prices Work: Working Mechanism

Cryptocurrency is the latest term and many of us don’t know exactly how its price works. If you are looking for the exact Cryptocurrency functionality and how it differs from the fiat currency then you have headed at the right page. I am here to give you a fair idea about Cryptocurrency price mechanism so observe the post attentively.

Chief Determinants of Cryptocurrency price
How Cryptocurrency Prices determined: Explaination

Comparison between the price of Fiat currency and Cryptocurrency

The chief difference between the Fiat money and the value of digital money is that Fiat Currencies are promoted by the Central Government and its value is also determined by the government. On the other hand, Digital currencies are not backed by any government or legal authority and there is no legal acceptance for cryptocurrencies.

Apart from these differences, the values of both currencies are affected by the same features. You can buy anything with Cryptocurrency and fiat currency and also utilize them as a medium of exchange.

Why there is so much volatility in the price of Cryptocurrency

Although several years have passed Cryptocurrency still a new term for a majority of people. Most of us are not familiar with this term and the main factor which makes it a risky investment is its fluctuation. You can say volatility is the foremost attire of the Cryptocurrency. That’s the reason people look for Price predictions before investing in any digital coin. There are many reasons behind its fluctuated price here are few of them:

  • When compared with the traditional market there is a lack of liquidity in the Crypto market. There is a huge difference between the total market cap of Fiat currency and digital currency. Any guess? It is more than $89 Trillion.
  • Daily trading volumes also have a huge gap. Cryptocurrency daily trading volume flutters around $14 Billion whereas the traditional market is near $5 Trillion.
  • As you know daily a huge number of users adopt Cryptocurrency and you according to the recent report more than 100,000 users join this platform daily. Many of them have specifically vested interest in the price of cryptocurrency whether it will go up or down. That’s the reason behind its volatility.

Chief Determinants of Cryptocurrency price

One thing is similar in between Fiat currency and Cryptocurrency, their price deciders. I think it is the basic thing and the price of every currency depends on it. Demand and Supply are the two crucial factors which determine the price of any digital coin. In case any particular token has a huge supply and little demand from users and traders then the price will fall significantly. Contrarily, If there is a limited supply of any digital coin and demand is huge then the price will go high.

Another element which drives the value of any particular coin is Scarcity. The round off supply of Bitcoin is 20 Million BTC and in past January the dominating coin has arrived at $20,000 USD. This is a pretty low amount when compared with other cryptocurrencies and thus demand of Bitcoin enhanced.

Our media is also responsible to drive the value of any digital currency. For instance, if any particular cryptocurrency gets negative reviews then you will observe a  remarkable drop in that coin’s value.

Apart from all these factors, there are some more elements which can upgrade the price of any coin such as usefulness, complexity in mining, etc.

Exactness behind the Cryptocurrency price prediction

No one can’t take the guarantee for any upcoming price in the traditional market and the same rule applies in the digital market also. Many crypto experts give their predictions for digital coins and investors observe them to get the fair idea of the upcoming price.

According to crypto Pandits and famous crypto personalities, Bitcoin will reach the $1 Million mark. Few ones are giving another forecast for Bitcoin but how accurate they are?

You should open up your senses while investing in any digital coin. Price predictions are only for analysis they can’t give you a fair idea. Always keep in mind that digital currency is not so old and it is highly volatile so there is no certain way to predict its price. You can observe these factors before investing in a particular coin:

  • Usability of tokens and the efficiency of the underlying technology.
  • Adoption of cryptocurrency in the upcoming years.
  • Nature of regulations manipulated in dominating the crypto market.

Is that clear? I think now you can understand how Cryptocurrency price works and what are the elements which can increase or decrease its value. Hope you got my point and if anything is still unclear then let me aware in the comment section.

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About the Author: Versha Gupta

A passionate writer with positive attitude towards life and seeking for opportunities. Believe in accepting challenges for exhilaration of victory. Connect with her at Facebook page

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