What Causes Crypto To Rise?
Want to know what causes crypto to rise? You are reading the right article! Cryptocurrency values are highly subject to change and this either brings a smile on your face or a frown. So, understanding what causes crypto to rise will give you an upper hand in investing!
Government controlled currencies have value because consumers trust them. Cryptocurrencies, unlike fiat currencies or other government authorized means of exchange, aren’t controlled by a central body. Therefore, cryptocurrencies gain value through other ways. This article explains what causes crypto to rise.
Supply and Demand
Supply and demand determine the value of cryptocurrency, just like anything else that people desire. Increasing demand leads to an increase in price. For example, if there’s a fuel scarcity, the price of fuel increases due to the unequal demand with supply . The same supply and demand principle is applicable to cryptocurrencies. Cryptocurrency value rises when demand is higher than supply.
Each crypto project normally announces its token minting and burning plans to make the supply system known. Some coins, like Bitcoin, have fixed maximum supply (we know that there will always only be 21 million Bitcoins). Others, like Ether, have no limit on supply and some cryptocurrencies have instruments that burn available tokens to ensure the circulating supply does not grow too large and hence, slow inflation. To burn a token is to send them to an inaccessible address on the blockchain. To learn more about token burning, see our post here.
There is a difference in monetary policy among cryptocurrencies. Cryptocurrencies dictated entirely by the team in charge normally choose to either release more of a token or burn tokens to manage the supply. Demand can increase as a project gains awareness or as utility increases. So, one thing that causes crypto prices to rise is consumer demand for a cryptocurrency against its availability.
Popular cryptocurrencies such as Bitcoin and Ether trade on multiple exchange platforms. These tokens have been listed on nearly every cryptocurrency exchange platform out there.
On the other hand, some smaller tokens may only be available on a few exchange platforms, thus making it unreachable to some investors. Many wallet providers charge fees for exchanging sets of cryptocurrencies across multiple exchange platforms. This then increases the cost of investing. Also, a thinly traded cryptocurrency may have a large spread on a small exchange platform, which can discourage some investors.
If a cryptocurrency becomes enlisted on many exchanges, it may increase the number of investors willing and able to buy it, and thus increase demand. As we know, if demand increases, the price goes up. Therefore, another factor that causes crypto to rise is the coin’s availability on exchange platforms.
Ever heard of a healthy competition? This is basically what this is. Sometimes when a new token launches, the act creates many buyers and suddenly its price increases. Competition can be two sided in terms of value creation because while competition can decrease the value of an asset, it can also increase the value of other assets.
There are thousands of various cryptocurrencies in existence as well as new projects and tokens that are launching every day. Because new competitors face relatively low entry barriers, creating a network of users is the most difficult and crucial aspect to a cryptocurrency’s success.
Applications built on blockchains can build networks quickly, especially if they have an advantage over competing applications. In a scenario where a new competitor gains momentum, it takes value from the incumbent token, sending the incumbent price down as the new competitor’s token rises in price.
Cryptocurrency networks normally follow a fixed set of rules. There are tokens that are called governance tokens that hand over the future of a project including how a token is used or mined to stakeholders. For changes to be made to the protocol of a token, there needs to be an agreement among stakeholders.
For example, Ethereum is trying to upgrade its network from a proof-of-work to a proof-of-stake consensus mechanism, which will make much of the expensive mining equipment in data centres or in people’s basements useless. This will surely have an effect on the value of Ether.
In theory, governance tokens should rise as the stakeholders deem fit. However, the slow process of improving protocols and updating software can limit cryptocurrency value appreciation.
To learn more about everything crypto, see our Learn section.