Even though the world of cryptocurrency is quite complex and confusing, the popularity of the term and the interest of people in it do not seem to be affected by this complexity.
Ever since its introduction, cryptocurrency has been one of the most volatile assets and researchers have been trying to understand the reason behind this. Investors and enthusiasts are also concerned about the constant fluctuations in the price and value of different cryptocurrencies and there are different reasons for that too.
As the majority of the people are not well aware of the different reasons that affect the fluctuations of the price, investing in cryptocurrency is not an easy task. There are different factors that might affect the value of crypto assets and through this article, we will be looking deeply into these reasons.
What triggers price fluctuations in cryptocurrencies?
Even though they are quite popular among people, taking time from when they were introduced and used widely, cryptocurrencies are still newbies, and there are a lot of different things that need to be understood about them. Here is spoke of the major factors that have the potential to affect or trigger a change in the value of crypto coins.
- Coin Utilities
According to different blockchains, one of the major factors that a cryptocurrency needs to attract investors is string use. There are different major cryptocurrencies that serve different functions.
Ethereum is one such popular coin and it is necessary to have ETH to execute different commands and develop applications on the blockchain. It is evident that the market capitalization of a cryptocurrency increases with the increasing role that the currency plays.
- Limited Resources
Some cryptocurrencies that are available in the market have a very limited supply. So, by following the general trend, the value of an item can increase in the long run if the supply is stable as it is said to increase the demand too.
The burning mechanism is something that is followed by different cryptocurrencies, where they destroy some coins. As the number of coins reduces, the value of the coin is expected to go high.
- Massive Adoption
Looking at the case of some of the most popular cryptocurrencies available in the market, it can be said that increasing the market adoption has a higher chance of increasing the market price of the cryptocurrencies too.
This tendency is inspired by the sentiment that the more popular a product is, the more expensive it will be. The case of Bitcoin is one of the best examples of this case.
- Default Assumption
The price of a cryptocurrency is on, as valuable as the market believes it to be. The development of the project is one of the major factors that the market value of the coin is based on.
Different factors influence the value of the project such as the market growth and the current value of cryptocurrencies, the consistent meeting of the whitepaper milestones, and the release of the MVP or beta.
- Government Regulations
As the crypto market is getting more and more popular among people and is gaining the power to affect different major aspects of society, the government is keen on implementing different rules and regulations in the world of cryptocurrency. Governments of certain countries are not so keen on having an unregulated, decentralized nature of this currency.
There is no doubt in saying that these factors have a big role in ensuring and sometimes even changing the value or price of a cryptocurrency in the market. While these changes can be foreseen or predictable, certain changes in the cryptocurrency world cannot be foreseen.
One of the major examples of such cases is the fall of FTX which took place in November 2022. Another example of such events is the healing of coins.
Conclusion
The value of a cryptocurrency is totally dependent on the community – its size and involvement. The value also changes when the demand for the coin exceeds its supply and if you are someone who is planning to invest in crypto assets, then keep in mind mid of all these events and ensure that you have a scaler idea about the working of the market and the volatility associated with it before you make your move.
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