Factors Affecting the Cryptocurrency Market

Cryptocurrencies operate on blockchain technology, which is a decentralized ledger technology that’s almost 100% hack-proof. The value of cryptocurrencies is directly tied to community demand and investor faith in the market. Throughout this article, we take a look at the factors affecting the cryptocurrency market.

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Crypto Exchanges

Cryptocurrency exchanges facilitate the purchasing and storage of crypto, but the crypto you’re looking for has to be available on the platform. When it comes to new and emerging cryptos, they get much more exposure once they’re listed on tier-1 exchanges; increases in trading activity will boost the value of cryptocurrencies.

Trading Access

Since Bitcoin was introduced in 2009, the crypto industry has grown from strength to strength, and it’s reached a point where it’s taken seriously. Therefore, brokerage companies are offering crypto trading services, which opens up the market to a large audience and has an influence on the value of the crypto market. For example, anyone can begin cryptocurrency trading on MT4, which is a  platform stacked with powerful analytical tools.

Mining Costs

Keeping a blockchain network operational is an enormous undertaking that relies on voluntary miners, which work hard to verify transactions and a rewarded in crypto for their efforts. If the miner costs increase, there’s a chance that the crypto value can increase. After all, miners are never going to carry out work if the reward isn’t enough to cover resource costs. However, the relationship between miners and value aren’t the only factors, so make sure you conduct your own research.

Government Regulation

Blockchain is unregulated and decentralized in its raw state, and many governments don’t like this. Therefore, they’re looking for ways that they can have control over the market, which kind of defeats the original point.

The most basic way for governments to regulate crypto is to put a tax on any fiat currencies cashed out. However, this isn’t foolproof because certain coins are exempt, meaning they can simply cash out into a different currency.

Another, more drastic way for countries to regulate crypto is to simply ban the use of Bitcoin. Unfortunately, if too many countries introduce 100% bans, the value of the entire market will soon decrease.

Node Count

Node count refers to how many wallets exist in a given blockchain, and you can find out this information by checking a blockchain’s homepage.

Knowing how to find out the node count is fantastic, but what does it have to do with market value? Well, the higher the node count, the stronger the community of a given blockchain. When community numbers are high, a crypto project is much more likely to survive through obstacles and crises.

Competition

There are new crypto projects emerging daily, from serious coins with a serious utility to meme coins. The emergence of viable cryptocurrency with enormous community interest helps to drive the crypto market upwards. The fierce competition in the crypto space motivates developers to continue improving their projects, as they attempt to capture market interest.

Social Media

Cryptocurrency is directly tied to community usage and buzz, which is why social media platforms are heavily responsible for the overall market value. For example, meme coins like DOGE exploded in value because Elon Musk supported the coin. Often, once the initial buzz dies down, meme coins struggle to gain traction again because they have zero real-world utility.

Coin Scarcity

Cryptocurrencies arrange their total supply in different ways, and it has an impact on how the coin’s value is worked out. For example, if a coin’s supply is unlimited and none of it is ever “burnt”, the coin’s value will struggle to increase in value. Whereas, if a project’s coin circulation is capped, it has a high chance of increasing in value.

Crypto Failure

When cryptocurrency projects fail, there are no protective measures in place for investor revenue because of the decentralized nature of blockchain. Unfortunately, this means that if large crypto projects crash, investors lose money, and it brings fear, uncertainty, and doubt into the industry.

One of the most recognizable crypto failures of the last year is Sam Bankman-Fried’s FTX collapse in November 2022. This was one of the largest crypto exchanges, and its scandalous collapse led to a loss of around 8 billion dollars’ worth of investor funds.

Breaking News

Breaking news works in a similar way to social media, as it’s a significant factor when it comes to steering community support – or not – for cryptocurrency. Therefore, when there’s positive crypto news, the market value increases. However, if there’s only negativity filling the crypto news feeds, it’s more than likely the overall market value will decrease.

The crypto market and blockchain technology have incredible potential for revolutionizing the world, but there’s a long way to go until it’s completely accepted. In the meantime, the above factors will help you to learn how the market value is influenced.

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