Fundamental Factors of Cryptocurrency Value Formation

Fundamental Factors of Cryptocurrency Value Formation: The online cryptocurrency rate is already the final comprehensive information that traders are guided by when deciding about investing or selling. At the same time, the value of digital coins is formed based on a wide range of factors, which are more than those of fiat assets. That is why trading coins is always risky, characterized by high volatility.

A key element of pricing is the ability to manipulate the market. As a rule, a cryptocurrency price depends on many factors that only some pay attention to. Inexperienced traders can often find themselves hostage when it is difficult to determine the price movement, especially when there are sharp price changes. That is why it is essential to understand what the live cryptocurrency prices depend on, when to change the strategy, and why it is better to form a diversified investment portfolio that provides for the presence of both main assets and developing projects.

How to determine and what determines the price of a cryptocurrency?

Many factors influence the quotes of coins. However, they can be both external and internal. Despite such features, some levers can quite sharply collapse the value of currencies. That is why it is worth considering the whole situation in the cryptocurrency market.

Cryptocurrency correction due to news

Any crypto news has a severe impact on market participants. As practice shows, immediately after positive news, the value of a crypto asset rises sharply, and after negative information, it falls. Suppose you want to avoid staying in the red. In that case, it is recommended to study not only the word of the crypto industry but also the features of the political and economic situation, taking into account the key elements of what is happening. For example, the news about the bankruptcy of the FTX exchange immediately provoked a depreciation of the BTC. At the same time, the announcement that digital assets will be used as a means of payment by online stores ensured the growth of quotations of the leading coins.

At the same time, it is worth paying attention to the fact that the more and more detailed the news covers the specified event, the more seriously it affects the value of the digital asset.

Fear factor

The main thing the Bitcoin exchange rate depends on is the emotion experienced by the coin's owner. Even though the psychological side is rarely explored, it plays a critical role. Most of the coins are not backed by anything. The value growth is mainly provided by user interest and the usefulness of the equipped Blockchain technology. To trace what determines the development of a cryptocurrency, it is necessary to understand the coin's behavior immediately after the negative news release. Inexperienced traders will immediately start selling the crypto asset. Hedge funds often use this practice to supplement the information space with news with a different aspect (positive or negative).

The impact of the state regulator

Any laws, regulations, and even preliminary statements by government officials have a characteristic effect on the crypto market. A vivid example is the ban on third-party cryptocurrencies, and mining in China immediately collapsed the market.

If you want to create a detailed analytical picture and assess the cryptocurrency exchange rate against the dollar, evaluate the political and economic situation. The more muscular the tension in the country, the higher the demand for digital assets. Investing in them is much easier and faster to make a profit. The market drops as soon as the situation improves as investments are withdrawn back into fiat money. When planning investments of a significant amount, be guided by this characteristic to evaluate profitable opportunities and their duration.

Pump, dump, and cryptocurrency exchange rate against the dollar

Pump and dump is another way to manipulate the rate of a single crypto asset. Whales use this technique initially to attract attention, then to drop a coin and make a profit. Predicting a pump and dump is difficult since traders are often faced with a ready-made manifestation of it. This can be defined in such ways:

Specific coin selection. If you see coins with a small capitalization in the list and find them on such large sites as WhiteBIT, Binance is difficult, but there is an increase in the price of a cryptocurrency. You can be sure that this is the implementation of the strategy (artificial increase in value).
A sharp rise in the exchange rate. An increase in price in the absence of a characteristic reason for this indicates that an artificial situation is developing around the coin. It is not recommended to invest in such coins in the long term. This is a high risk that often leads to a scam. You can get the maximum benefits immediately during such a sharp jump, but you should not wait for the peak.

Focusing on these factors, you can objectively understand what the price of a cryptocurrency depends on, assess the situation, and build a trading strategy even in conditions of constant market volatility.

Cryptocurrency Cost Factors

All factors of cryptocurrency price today formation is divided into several main categories:

financial factors – the group includes financial information, such as prices, volumes of transactions, inflow or outflow of currency;
development activity – the development activity of each Blockchain protocol. The main factors used for this report were GitHub activity and overall developer activity;
mentions in social networks – the category reflects the presence of each protocol in social networks such as Twitter or mentions in search engines such as Google;
network usage – indicates how widely a particular protocol is used;
network size and maturity – measures the size or maturity of a network.

The value of a bitcoin is primarily determined by its stock-to-flow ratio, the ratio of the total amount of BTC available to newly generated coins. Due to the scarcity inherent in the system, bitcoin should be valued on the model of gold: bitcoin production is complex, and the maximum number of coins is limited from the beginning. And the halving dates, that is, the halving of bitcoin production, are considered growth impulses since, in this case, the reward for producing new coins is halved.

However, due to the low liquidity of the market, there were managed to study for only two years. In these years, cryptocurrency price live increases were recorded with a delay in each case. Other factors, such as the number of active BTC users, had a lesser impact on pricing.

The impact of Bitcoin on the rate of other cryptocurrencies

Oddly enough, there also essential to avoid acknowledging the influence of social networks on Bitcoin pricing. However, for Litecoin and Monero, Github and social networks were perceived as drivers. The analysis showed that different fundamental factors determine different categories of cryptocurrencies.

According to the study, a change in the price of Bitcoin significantly impacts the other cryptocurrency prices, the so-called altcoins. Bitcoin appears to be driven by its stock-flow model. Although this conclusion is only indicative given the limited number of calculations, the average price level is correlated with the stock-flow ratio.

The cost of a cryptocurrency is a complex concept that considers many parameters. Treating pricing issues as responsibly as possible is essential since it depends on whether you can earn something on investments in cryptocurrency. It is necessary to assess how the value of a particular currency develops. Choosing a reliable platform that will provide investment opportunities is also essential. In this case, you can distribute and use all your resources with maximum benefit. Keep a close eye on the latest cryptocurrency market news to stay current.