What Influences The Prices Of Cryptocurrency?

When we talk about cryptocurrency, people always ask what’s the price? There’s no wonder people care about the price because people want to become really rich, really fast. Let’s talk about the factors that influence a cryptocurrency’s price. After reading this, I believe you be able to make more informed choices in the right coin to invest in.
1. Supply
The first main factor is supply. When Ethereum released ERC 20, anyone who can write smart contracts could issue their own coin. The coin’s total supply is defined in its contract. Nobody cares about a coin’s price at the beginning, so many coins had the price of zero after their ICO (Initial Coin Offering). Some people notice this and think economics tell us when demand is constant and supply drops then the price will rise.

Crypto companies introduce “burn rate” into their smart contract in order to control the price of their coin.
There have two way to do burn rate:
- Using ICO profit to buyback remaining coins.
- Using smart contract to burn remaining coins.
Using burn rate, their coin’s price will go higher after the ICO. An ICO without burn rate will not appeal to investors.
2. Demand
In Fig. 1, we see that supply influences the price. As you may notice demand also drives the price. As demand rises, so does the price.

Now that we know the relationship between demand and price, but how can we increase demand for our coin? We need to incentivize people to HODL, otherwise known as buying and holding. Take Binance as example, Binance is a crypto exchange and it knows people care about exchange fees. So it’s policy is “ If you hold our coin, you will have 50% exchange fee discount”. This works, we can see Binance’s price trend as below:

We can see that when Bitcoin had 400% return on 10/2017–12/2017, Binance had almost 120,000% return, and when Bitcoin had -63% return on 1/2018–8/2018, Binance had only -25% return. Binance’s increased demand kept its price higher.
3. This Coin Can Change Your Life?
The third reason is the coin provides significant functional value for people. Let’s consider these representative coins:
- Bitcoin: It created a new way for people to transact without third parties, it uses miners to verify whether the transaction is correct or not. The process doesn’t need central mechanism to be involved, giving people privacy and freedom they didn’t have before.
- Ethereum: It helps anyone who can write smart contract to issue their own coin. Any asset can be represented by their coin. It doesn’t need central mechanism to issue or define the asset.
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