Currently, there are many factors that affect the price of cryptocurrencies, such as the amount of demand for the products, the number of companies producing the coins, and how much the regulatory bodies are regulating them. As a result, the prices of these coins are very volatile, and it's important to have a good understanding of them before investing.
Supply
Whether you are a new investor or you already own coins, understanding the supply and price of cryptocurrency is important. A good understanding of the factors that affect these prices can help you to make a smart decision when buying or selling a cryptocurrency.
The total supply of a cryptocurrency is determined by a few factors. The number of coins currently in circulation is one of the most important. This includes all the coins that are in escrow.
There is also a maximum supply of a coin. For example, Bitcoin has a maximum supply of 21 million coins. Not all cryptocurrencies have this max supply. Some have no limit on how many coins can be mined.
A second metric is the fully diluted market cap. This means that the maximum supply of a coin is multiplied by the current price to determine its value. This is often used by investors to compare the value of different cryptocurrencies.
The most important metric is the total supply of a coin. The total supply is the maximum amount of coins that will ever be mined. Generally, the more coins that are being mined, the lower the price.
The circulating supply is the amount of publicly available coins that can be traded or sent between wallets. It is the best approximation of the total supply.
If a government bans crypto, then the supply of these coins will increase. Similarly, if a crypto monetary system has high fees or slow transactions, then the price will fall.
Demand
Investing in cryptocurrencies can be a lucrative venture. But despite the popularity of digital currencies, many people are still wary of putting their hard earned cash on the table. Fortunately, there are several factors that can influence a person's decision to invest in crypto.
The most important factor influencing the price of a cryptocurrency is the supply and demand equation. If there is more demand than supply, the price increases. Similarly, if there is less demand than supply, the price decreases.
Another factor influencing the price of a coin is the mining difficulty. The difficulty of mining a digital coin can have a big impact on its price. If there is a high difficulty, the price of the coin will go up.
Other factors affecting the price of a crypto include regulation and publicity. If a government decides to ban crypto, it will increase the supply and decrease the value of the coin. Alternatively, if the public decides to accept the currency, it will help to drive the price up.
Media coverage has a major influence on the price of a coin. When the price of a crypto goes up, more people will want to buy it. Likewise, if a scam or scandal takes place, the price of a coin will go down.
The supply and demand equation is one of the most commonly quoted adages in the cryptocurrency industry. But the true value of a crypto can also be difficult to gauge.
Production costs
Among the many enigmas that have bedevilled the cryptospace is the question of how much it actually costs to produce a single bitcoin. According to JPMorgan, the cost of producing one BTC in the last six months has dropped from US$20,000 to US$13,000. These decreases are believed to be due to lower energy usage and improved mining efficiency.
The Cambridge Bitcoin Energy Consumption Index (CBECI) is a metric used to calculate how much energy is being consumed by miners. The CBECI shows that the cost of producing a single BTC has fallen 40% from 2022 peak demand of almost 16 GW in February.
A group of JPMorgan strategists have weighed in on the cost of production for cryptocurrencies. They have compiled a list of the most important metrics, including the cost of mining a single BTC, and the most likely corresponding price.
The most cost-effective way to mine a single BTC is to do it in a cloud farm. However, this may be difficult to achieve given the current state of the market. Also, with the price of electricity skyrocketing, a significant number of miners have opted to power down their older inefficient mining rigs.
There are some analysts who say that the cost of producing a single BTC in the last six months has reached a low not seen since the halcyon days of 2013. This phenomenon is bad news for broader cryptocurrency markets.
Competition
Various technologies have hit the mainstream at a rapid clip, and cryptocurrencies are no exception. This has spawned numerous companies in a variety of industries. Some of the more notable companies include Bitfury Group Limited, Xapo and Ripple Labs, Inc. These are not necessarily confined to the fintech domain; some of these companies are hardware and software companies, while others are purely agnostic.
A recent report by Puma and Deloitte (the two names above the latter) analyzed a number of cryptocurrencies and found that a large portion of the market is still largely underserved. This has led to the creation of numerous start-ups with the aim of redefining the digital currency landscape and securing the title of cryptospace kingpin. One major challenge to overcome is the lack of government regulation, a topic on which we will write more in forthcoming articles. This has been a boon to a number of neophytes, but also a hindrance to more seasoned market players. Some have resorted to tactics ranging from aggressive marketing and PR to ad hominem attacks. This is particularly true for cryptocurrencies that are not well known outside of their respective circles. We can expect this trend to only worsen in the coming years.
Regulatory developments
Regulatory developments impact cryptocurrency prices in many ways. They can stifle innovation in the nascent segment, hurt trading volumes, and spook bad actors. They could also open the crypto market to more conservative investors.
In addition to regulatory oversight, some governments are taking measures to restrict their citizens from using cryptocurrencies. Some view them as tools for international cybercrime. Others, like Turkey, have banned them altogether. In the United States, President Biden issued an executive order aimed at ensuring responsible development of digital assets.
The Financial Stability Board released a report highlighting the risks of cryptocurrencies. It included nine recommendations, including a call for more oversight of the underlying technology and governance. In addition, it recommended that agencies further empower themselves by enforcement.
The European Parliament passed a landmark crypto asset bill in 2018. It is dubbed MiCA (Markets in Crypto Assets Regulation). It will eventually lead to a licensing regime for crypto assets in Europe. Its implementation is expected to begin in 2024.
Meanwhile, the European Central Bank announced that it would begin a 24 month experiment with a central bank digital currency. In an editorial, the Wall Street Journal stated that regulators are "creating a dangerous environment" for retail investors.
The United States has been slow to develop a policy for digital assets. While several initiatives have been implemented since the executive order was issued, there are still gaps in the regulatory framework. Until policymakers can more clearly define their goals, the future of the sector is uncertain.
Media coverage
Several studies have shown that media coverage can impact the value of a currency. A recent study by Clovr, a blockchain-oriented research firm, found that mainstream news coverage of a crypto-currency spikes when the market is in decline. It is unclear what role this plays in driving trading strategies and the price of a digital token.
There is evidence that regional media coverage can affect investor sentiment and trade volume. However, the effect may be asymmetric. Compared to the world at large, news coverage is concentrated in North America, the third most active region for crypto volume on the chain. This could lead to a disproportionate influence of the local press on the regional investor base.
There is a small but statistically significant difference between the average sentiment of articles from Reuters, USA Today and Gizmodo. Those articles are less likely to contain the big buzzword, or the'smart n'.
The study measured a subset of 4,218 articles from News API and Nexis news databases. The top topics were economics, financial governance and crime. Those articles were then grouped into themes.
In addition to the traditional media, there are several online news outlets covering the crypto space. A few of these publications have dedicated sections to cryptocurrency. These are often a good source of information about a particular project. The content of these articles can help dissect a project, and can be a helpful source of information for the crypto curious.