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What Determines the Price of Cryptocurrency?

May 23rd, 2019CoinFlip Team

When you buy or sell cryptocurrency at, for example, a CoinFlip cryptocurrency ATM, the price you pay (or cash you receive) depends on the value of that cryptocurrency. But understanding how the price of any given cryptocurrency is determined may be confusing for some. Fortunately, though many things can affect the price of cryptocurrency when you withdraw it from a CoinFlip ATM, the basic principles of price fluctuation are fairly simple.

In fact, if you’ve taken an entry-level economics course, you’re already way ahead of the game. If not, don’t worry. Like anything from a house to a computer to a certain company’s stock, cryptocurrency prices are determined by supply and demand. The lower the supply and the greater the demand the higher the price, and vice versa. However, as you may have guessed, there are several factors that can affect supply and demand, which we’ll review here.

Public Sentiment

Whether what they’re reporting is right or wrong, the media can have a big influence on the price you pay for cryptocurrencies at a CoinFlip ATM, or anywhere else for that matter. This is because the way a given cryptocurrency—or cryptocurrency as a whole—is portrayed in the media is going to change the way potential crypto investors view cryptocurrency. If the media is constantly reporting about crypto scams, price volatility, and other negative things, fewer people will be inclined to buy cryptocurrency. As a result, demand falters and the price goes down. Of course, the inverse can happen as well when news reports are overwhelmingly positive.

The Usefulness of the Cryptocurrency

Another key influencing factor on the price of cryptocurrency is the coin’s utility value. Take Bitcoin for example; Bitcoin is useful because it’s a safer, decentralized currency that people can use without getting third parties involved to verify their transactions. However, part of what makes one currency more valuable than another is the extent to which the currency is adopted and used. This is because, to be useful, a cryptocurrency like Bitcoin must be in use by other people or companies so that people who have Bitcoin can actually buy things with it.

If no one would accept Bitcoin as a form of payment, and there was no place like CoinFlip to buy it, fewer people would want it, the demand for it would go down, and its price would decline, all because it wasn’t useful. For this same reason, the more people that use Bitcoin, the higher the price will go—generally speaking.

Mining Difficulty

Miners are critical to the viability of cryptocurrencies because they help verify transactions to create a secure network. If a cryptocurrency is very difficult to mine, doing so costs more money, which disincentivizes miners to verify transactions. Without miners helping to ensure the security of the cryptocurrency’s underlying blockchain, the cryptocurrency may be seen as less secure. As a result, potential investors may shy away, or demand a lower price to compensate them for their risk. In the end, this means less demand which means lower prices.

Cryptocurrency Prices and Volatility Explained

Knowing what you do after reading this, it should make more sense why cryptocurrency prices can be so volatile at times. Because it’s such a new technology and a new market, public sentiment can quickly swing since cryptocurrency is still very new to many people. As the market matures over the coming years, there’s a chance that cryptocurrency prices could fluctuate less than they have over the past few years.

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