How are cryptocurrency like Ethereum prices are decided?

What controls the price of cryptocurrency?

Cryptocurrency prices are decided through factors like
  • ‌Supply & Demand
  • ‌Cost of Production
  • ‌Availability
  • ‌Demand
  • ‌Number of Buyers
  • ‌Government Rules

In this article, we are going to discuss all the points in detail, And see how this factors Cryptocurrency prices.

Before Moving forward we will have a quick recap on what Cryptocurrency is?

Cryptocurrency is basically a type of digital currency. Remember do not confuse that they are both the same. Cryptocurrency is just a part of digital currency. 
Well, Cryptocurrency transactions are not recorded by any financial institution unlike money which is deposited in the bank and can be used by Netbanking. Crypto transactions are recorded on the blockchain and are not verified by any financial institution like a bank and Cryptocurrencies can be exchanged with other users directly.
There are Several Cryptocurrencies like
  • ‌Bitcoin
  • ‌Ethereum
  • ‌Dogecoin
  • ‌Tether
  • ‌XRP
  • ‌Binance Coin
  • ‌USD Coin

As we discussed earlier Cryptocurrency prices changes due to a lot of factors which we are going to discuss in brief and see how prices change. We can see the price change from world coin index.

1. Supply

Just like any other product Crypto price depends on the supply of cryptocurrency. 
For example:
If the supply of any product increases and demand is less the price of that product gets decreased and If the supply of any product decreases and demand is higher the price of that product gets increased.
The same is what happened with crypto if supply increases the price of that particular cryptocurrency decreases similarly, if the cryptocurrency supply decreases the price gets increased.

 
Cryptocurrency supply


Similar to any other commodity with demands increases if people want it more it depends upon many factors. In the case of crypto, it may be the government policy on a particular cryptocurrency. For example, if the price of tax on Bitcoin increases people may not like to buy Bitcoin which may decrease the demand for Bitcoin.


2. Cost Of Production

The cost of a production place is important in deciding the price of any commodity. Likely new cryptocurrencies are produced through a process called mining this process is very expensive as it requires a lot of expensive components like video graphic cards which are very expensive due to their increasing demand, which increase the price of cryptocurrency as the cost of production is very high. It also has electricity in order to mine. And due proof of work system used by many cryptocurrencies is like Bitcoin and Ethereum, the more competition increases it becomes difficult to mine.


As mining cost increases miners don't mine crypto with less value as it may not cover their cost of production which directly affects the demand for particular cryptocurrency.


3. Availability

It is one of the reasons for inflation or deflation in cryptocurrency prices. Availability means the difference between how much a particular cryptocurrency can be mined
And how much of it is already mined. For example, Bitcoin is limited to be mine at 21 million due to its Bitcoin protocol
and nearly 19 million Bitcoin is already mined till date.
It makes Bitcoin prices go higher.


4. Demand

Supply and Demand are both connected to each other. As we see if demand is higher and supply is less price will be increased
when the decentralised finance project got launched on Ethereum the demand for Ethereum got increased which made the price got higher in the chart. Accessibility and transparency of currency made it a good asset to invest in. Which increased the number of buyers and the price of crypto.


Government rules

It Played an important factor in determining the price of the cryptocurrency. Government policy in India which said 30% of any crypto transaction will go to the government, which made a lot of people think before investing in crypto which certainly decreases the demand for crypto.

Conclusion

Cryptocurrency prices are very volatile because of the above factor there are a few more factors too affecting crypto prices but these are once affecting How are cryptocurrency like Ethereum prices are decided?.

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