In the world there are more than five and a half thousand digital tokens, the cost of which varies hundreds or even thousands of times. Why is bitcoin more expensive than altcoins, what their course depends on and what can affect it
The cost of cryptocurrencies depends on various factors. But one way or another, everything depends on the ratio of supply and demand. If the interest in digital currency on the part of the buyer grows, then it rises in price, and vice versa. Talks about everything that can affect this.
Cryptocurrency emission
In 2017, a lot of newcomers came to the cryptocurrency market. Someone bought an expensive bitcoin until its price rose to $ 20,000. Others - focused on assets that, compared to BTC, were cheap. For example, the token of the Ripple XRP blockchain startup.
After Bitcoin set a historic high of $ 20,000, the altcoin XRP climbed to a record high of $ 3.8. Investors expected a multiple increase in the value of the coin, but did not take into account the issue of a token of 100 billion. If you recalculate the then price of XRP, imagining that its emission is equal to the emission of bitcoin (21 million), it turns out that altcoin at that time was worth a little more than $ 18,000. That is almost like BTC.
Capitalization and number of coins in circulation
In addition to emissions, the number of coins in circulation also affects the cryptocurrency rate. The more they are, the greater pressure on the value of the asset, theoretically, can be exerted.
Take, for example, bitcoin. Now in circulation are about 18.4 million coins. Every day, miners mine about 900 more BTC. Selling the received cryptocurrency, they increase its number in the market and thereby contribute to lower prices.
For this reason, tools were invented that can reduce the number of circulating coins. For example, this is provided for in the upcoming Ethereum network upgrade . Altcoin will have a stacking function. Users will be able to receive passive income for storing ETH. Thanks to this, investors will be less inclined to sell cryptocurrency, that is, its amount in circulation will decrease.
Capitalization is another significant factor. It is determined by multiplying the cryptocurrency price by the number of coins issued. This indicator affects the dynamics of the price of an asset. The greater the capitalization of the token, the more you need to invest in it in order to affect the rate. For this reason, cryptocurrencies with low capitalization can grow by hundreds and thousands of percent in a short period, and at the same time are more susceptible to manipulation. For example, ParallelCoin with a capitalization of $ 53 thousand in November added 400,000% to the cost per day.
Along with capitalization, trading volume also matters. If this indicator is low for cryptocurrency, then, firstly, there is less demand for it. Secondly, at the cost of such a coin, in theory, it is easier to manipulate.
Application and Features
Another factor that helps increase demand and, accordingly, increase the value of cryptocurrency is its application. For example, consider the BINANCE BNB exchange token. In December 2018, its rate fell to a minimum of $ 4.2.
In early 2019, the trading platform announced the launch of the platform for the initial offer of tokens - IEO. To participate in the action, it was necessary to hold a BNB token. From that moment, its rate began to grow and by July reached a maximum of $ 39.6. The cryptocurrencies of other companies that also launched the platform for IEO showed similar dynamics. For example, cryptocurrency exchanges KuCoin, OKEx and Huobi.
IEO plays an important role for another reason. Exchange users buy tokens to participate in the initial offer of a new cryptocurrency. But more importantly, because of this, some coin holders do not sell it during a recession. In other words, investors “walk” an asset for the sake of participating in IEO, which temporarily reduces its amount in circulation.
BNB has another feature. Every quarter, Binance burns its tokens. The last time this happened in April, then the company destroyed cryptocurrencies by $ 52.5 million. Thus, the issue of coins was reduced, and accordingly, demand relative to supply increased.
Product and Users
Another important indicator is the availability of the finished product. Cryptocurrencies vary in concept. Bitcoin, for example, is a payment system. It can also be considered as an investment asset. But the coin itself is not a derivative of any product.
Another example is the Enjin token. The project that developed it has several products. These include the blockchain browser, wallet and, most importantly, a platform for the exchange of game items. The number of its users exceeds 20 million.
This is probably one of the reasons why the Enjin token rate after the March recession showed a better result than Bitcoin. Then the price of altcoin fell from $ 0.91 to $ 0.032. To date, it has risen by almost 500%, to $ 0.19, briefly exceeding $ 0.23. Over the same period, the cost of BTC rose by about 150%.
Popularity is another important contributor to value growth. A significant part of users follows the most famous cryptocurrencies and invests in them. These primarily include Bitcoin, Ethereum, XRP and Litecoin. This is the most competent approach in terms of reliability. The fame of BTC and other high-end projects reduces the risk that a coin may depreciate in the blink of an eye.
At the same time, such a strategy has less potential with higher risks. Unknown coins may be underestimated. If the project is backed by a reliable team developing a potentially demanded product, then there are chances that the project token will seriously rise in price.
Correlation and News
For most cryptocurrencies, an important factor affecting the price is its correlation with bitcoin quotes. Practice shows that when the main digital asset becomes more expensive or cheaper, it affects the course of all altcoins.
For example, according to a study conducted by Binance at the beginning of the year, the price of Ethereum, Litecoin, EOS, XRP, Bitcoin Cash and BNB in ??70% of cases repeated the movement of bitcoin quotes. Atom, Link and Tezos tokens showed the lowest dependence on BTC - 24-28%.
Another significant but unpredictable factor is the news background. Sometimes high-profile news can rapidly change the price of bitcoin and, accordingly, affect the entire market. For example, in late October, Chinese President Xi Jinping announced that blockchain is one of the key technologies for the development of the country. Within a day after this, the Bitcoin exchange rate rose from $ 7,000 to $ 10,000.
A recent example is the story with the BAT token. This cryptocurrency is part of the ecosystem that includes the BRAVE browser. On June 6, one of the browser users learned that a referral link leading to well-known crypto-exchanges is automatically inserted in his search bar (the creator of a referral link receives rewards if new users register on it). When the story became public, the price of the BAT token fell from $ 0.25 to $ 0.23. By the current moment, she has recovered to the previous level.
Of great importance are the news about the upcoming cryptocurrency update. For example, at the end of May, the THETA Fuel token increased by more than 700% in a week . The main driver for the increase in the value of the coin could be the launch of the Theta main network, as well as the addition of theta.tv application to the Samsung Daily platform on Galaxy mobile devices.
It's hard to keep track of everything. What to focus on
There are many factors that affect the price of cryptocurrency. Some of them are permanent, and they can be kept in mind. For example, the issue of tokens or their use in real life. Knowing this will help you choose the most suitable coin for investment, that is, less risky and, at the same time, having greater potential.
Other factors are unpredictable, it is primarily about the news. Both good and bad. Keeping track of such things is difficult, but, in theory, it can bring good profits. Crypto alarms and other applications will help to control most of the incidents of the crypto industry
