Several Factors that Can Affect Crypto Price in the Market

November 27, 2020
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Just like stock or commodity, crypto is an investment instrument with prices that can be volatile and unpredictable.

While there is no definite way to predict crypto price movement with 100% accuracy, there are several factors that can affect the crypto price:

Supply vs demand

On the most basic level, the price of a crypto asset is determined by its supply and demand in the market.

For example, if the demand for bitcoin in the market is rising / higher than supply of sellers, the price of bitcoin goes up.

On the other hand, if there are more bitcoin sellers than buyers, the price of bitcoin will go down until they reach an equilibrium point.

Utility

The price of a crypto asset tends to move together with usage. If the crypto is widely used, price tends to go up. If the crypto is deserted and abandoned by its users, there is no value left in the crypto and its price tends to go down.

Example :

Currently, there are tons of DeFi (Decentralized Finance) projects that are built on top of the Ethereum blockchain.

All interactions or transactions on top of Ethereum blockchain requires the user to pay Ether (ETH) as gas fee to pay for miners’ computing power.

As the usage and transaction volume of DeFi projects rises, the demand for ETH also rises. This causes the market price of ETH to increase.

Fear and greed

Psychological factors, such as public sentiment and fear and greed, may also affect the price of crypto.

Example :

The price of bitcoin moves up significantly after a long period of no significant movement.

This will result in the public becoming greedy and buying more bitcoins, hoping that the price would rise even further. As more people buy bitcoin, the prices rises, causing even more people to buy bitcoin.

As the price of bitcoin starts to top, many people starts selling their bitcoin to take profit. As more people sells bitcoin, the price of bitcoin drops even further. This decline in price incites fear in the public, causing even more people to sell their bitcoin.

Market Capitalization impacts price volatility

Market Capitalization (Market Cap) of any coin can be calculated by multiplying the total circulating supply of a cryptocurrency with its latest price. Cryptocurrencies with large market cap (such as Bitcoin) tends to have less price volatility compared to those with smaller market cap (such as DeFi tokens)

Example:

  • There are currently 18,550,000 bitcoin (BTC) that is already mined and is in circulation. With a price of Rp 250 million/BTC, the total market cap of bitcoin is 18,550,000 * Rp 250,000,000 = Rp 4,637,500,000,000,000
  • On the other hand, the total supply of YFI tokens are only 30,000 YFI. With a price of Rp 330 million/YFI, the total market cap of YFI is 30,000 * Rp 330,000,000 = Rp 9,900,000,000,000.
  • The market cap of YFI is much smaller (<1%) of BTC. As a result, the price of YFI is much more volatile compared to BTC.

You can search Market Cap data of any token on websites such as https://www.coingecko.com/.

The price of stablecoins will always follow the backing assets

Unlike most other crypto assets, the price of a stablecoin will be equal / almost equal to the price of the asset that is backing the stablecoin.

Example:

Tether (USDT) is a stablecoin that is backed by US Dollar. The price of USDT will always be equal / almost equal to US Dollar. If the current dollar exchange rate is IDR 14,000, then the price of 1 USDT would be almost equal to Rp 14.000.

Disclaimer

  • The information above is for educational purposes only, and is not intended to be financial/investment/trading advice. Be sure to seek out more information from multiple sources before starting investing. Pintu is not responsible for any potential losses from your investment decisions. Please make your investment wisely.
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