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The other day, cryptocurrency investors were pleasantly surprised when Bitcoin prices rose by over $1, 000 in just 30 minutes. While some consider this luck, more experienced investors were not completely taken by surprise because they know what drives the cryptocurrency market cap.
Here are 5 key factors that drive the overall cryptocurrency market cap.
The technology used in a cryptocurrency can have a huge impact on its success and positively influence the cryptocurrency market cap of related coins. Because cryptos are digital, it is possible to have bugs in the code. For example, a hacker discovered a bug in an ethereum-based smart contract and exploited it to steal $30 million. A discussion ensued to fix the bug by reconstructing the blockchain but not everyone agreed. Some feared it would affect Ether value. A compromise was reached and Ethereum was split. There is now a version that maintained the original blockchain and one that implemented the recommended fix. Obviously, such forks have an impact on the price.
2. Cost of production
The opportunity costs as well as direct costs incurred in producing a cryptocurrency impact on the price and cryptocurrency market cap. For instance, Bitcoins are quite expensive to produce. Lots of resources and energy is required to mine a Bitcoin. These costs are what contribute in part to the price of Bitcoin.
3. Node count
A node count is the sum of all active wallets on a network. One common way of checking if a cryptocurrency is fairly priced is checking the node count and then comparing it to other cryptocurrencies. The node count also reveals whether or not a cryptocurrency has a vibrant community. The more the nodes, the more likely the cryptocurrency will survive a major crisis.
4. Big online exchanges
The classic law of demand and supply also affects cryptocurrency market cap. As big online exchanges become popular, the demand for cryptocurrencies continues to rise. As more companies and countries start accepting cryptocurrencies, the prices of cryptocurrencies will continue to rise. This is especially true since the supply of many cryptocurrencies is limited.
5. Mass adoption
Any currency that is adopted en masse tends to shoot up in value over time. This is based on the demand and supply logic. Since there will always be a limited supply of cryptocurrencies, the prices should continue to rise as they are adopted by more people. The main reason why cryptocurrencies have not been accepted by the masses so far is that enough merchants haven’t adopted them as a form of payment. But this is expected to change in the near future.
So there you have it – 5 key factors that drive overall cryptocurrency market cap. You don’t have to be taken by surprise the next time there is a surge. Just keep abreast with the latest events in the crypto market and you will know how to structure your investments.
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