Data science

What Determines the Price of a Cryptocurrency?

The price of crypto depends on various factors. At any given time, crypto prices are influenced by several market and non-market elements. These factors may range from simple time-tested supply-demand economics to the project’s technology such as its algorithm and consensus and use-case like exchange utility, privacy coin, and even the more recent and less understood social media frenzy. 

 

Supply-demand Economics
The more something is available, the less it is valued. The total supply of a coin in part determines the price of a cryptocurrency. The greater the supply of a currency, the greater will be the selling pressure, and the lesser its price. 

But if you’ve been watching the crypto market for as long as we have, this may not always be true. There are coins with unlimited supply, such as Ethereum, that have appreciated more than 1000% (fueled by other factors in this list). So, to get a clearer view of a coin’s price potential, one should look at the total supply, circulating supply, and the market cap as a whole. 

 

Technology & Use Case 
The tech behind a project and its use case are other important factors to consider. If you want to know whether a token is worth your while, then ask the question: what real-world problem is the project and its underlying token solving? If the coin or token has solid technology backing it, then it will naturally attract people to buy it, thus driving up demand and subsequently, its price.

 

Tokenomics  
Tokenomics is another factor to consider. If only  20% of the coin were sold to the public and in actual circulation, while 80% of it were reserved, then it is likely that the coin may depreciate in value as more and more of it is released into circulation. Check to see if there’s a favourable lockup and emission rate, buyback or coin burning mechanism that may drive its demand.  

 

Nascent Market & New investors
The stock market has over 200 years of history behind it. Compared to that, crypto is relatively nascent, and so there is high speculation and volatility in crypto markets. Traders and investors buy the dip and sell the news at the drop of a hat. 

The crypto industry is a sapling compared to the stock market behemoth, but there lies the potential. Only 100 million people or 2.14% of the 4.66 billion internet users currently use crypto. This figure was only around 50 million in 2019. In terms of market, the mass adopted stock market has a global market cap of $93 trillion USD while the lesser-known crypto already has a total market cap of $1.8 trillion USD. As crypto adoption goes up, so will the demand for it. 

 

Social Media Frenzy 
This is a relatively new trend spurred by growing social media trading communities. When users of the subreddit r/WallStreetBets drove GameStop (NYSE: GME) stock up by 30 times its opening price in January this year, they made history. It was the first time traders banded together on social media to incite an artificial short squeeze, driving up the price of the GME stock. 

Crypto is no exception to this trend as #CryptoTwitter is famous for similar activities. Tweets from Tesla and SpaceX founder Elon Musk were able to send the meme coin, DOGE, to a whopping 11,000% of its initial value. But there are many ways social media can help determine the price of a crypto project. And amid all this chaos, there is information to be found. Social following and sentiment can be used to gauge the strength of the project’s community.

 

Community & Utility 
This brings us to our next major price factor, community. Communities can make or break a project. A strong community following is necessary for every cryptocurrency. Bitcoin, the largest crypto, has many hardline believers and maximalists. In a Twitter survey by crypto influencer Plan B, 72% of the respondents said they will ride Bitcoin to $0. 

Along with the community, utility plays a vital role in its adoption. Because, barring speculation and alluring returns, for people to hold and transact with crypto, it must be spendable in some way. 

 

Regulations 
There’s always the risk of the regulatory hammer falling down on crypto. Each time there’s regulatory action, prices have spiralled down. A few examples are China’s recent Bitcoin mining ban and SEC’s crackdown on the 2017 ICOs. But regulations are becoming lighter around the world. The Supreme Court of India lifted a 2-year crypto ban in 2020. Last month, Google greenlit crypto ads. Crypto enthusiasts are also hopeful as countries like El Salvador legalize Bitcoin while a few of its neighbours seem to follow suit. 

 

New developments 
We now arrive at the last and most important factor that keeps a crypto project alive: the size of its developer community and sustained development. Innovation and development are the heart and soul of a crypto project. Without new developments, the project could be considered as good as dead. Whether it is a second layer scaling solution or a privacy roll-up, every successful crypto project today has made strides in its development. 

Cryptocurrencies are highly volatile and their prices can often fluctuate. But that hasn’t deterred new people from investing in crypto. All the above factors contribute to determining the price of crypto in the long run. 

 

Beldex
Beldex, the first crypto project to develop a privacy-focused decentralized ecosystem on the Beldex privacy blockchain, checks most of the above criteria. BDX is a privacy coin for anonymous transactions. It is also a utility on the Beldex private ecosystem. BDX, one of the few master node cryptos with a strong community following, is launching its POS hard fork scaling solution in Q4, 2021. This will increase the network’s scalability, reduce fees, enhance rewards, privacy as well as security. The POS hard fork will also reduce the need for heavy machinery, thus reducing the entry barrier to network participation. Beldex also introduces a second-layer solution to speed up the transaction time for mainstream adoption. 

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