• The price of crypto is determined by various factors that should be considered before investing in them. 
• Primarily affected by its supply, Bitcoin is not regulated by any bank or government authority. 

Everyone is familiar with the concept of investment in crypto assets. Crypto assets are bought and sold on an exchange platform. Crypto assets use the technology of blockchain and assures that all the transactions and trading takes place efficiently. 

Since its launch in 2009, crypto has shown a lot of upward and downward trends that are variable with every passing day. As simple as it may look on the outside, every crypto is regulated and controlled by a variety of factors. It’s not a one-man job, instead, various factors are taken into consideration while deciding the price of a crypto asset and fluctuating the price of those assets. 

The key factors that determine the price of crypto are: 

Supply and Demand 

Any asset with a high demand will have a low price. Prices fall or decrease when supply is low and demand is high, prices rise or increase. Whenever crypto assets are designed, their supply gets coded or decided. Some cryptos have unlimited supply and hence, they become inflationary assets. While some cryptos, like Bitcoin, have their supply limited so that their demand always remains greater than supply. They are called deflationary assets. For example, Gold is expensive because it is not readily available and takes a lot of energy, time, and money to mine it. The same goes for Bitcoin and other limited cryptos.

Popularity 

The more popular the asset, the greater the price. When a crypto asset is more popular, it has a strong community that results in higher prices.

The creator of these projects very well knows that media coverage will affect their popularity in negative or positive ways. So, before going through any change or update, they undergo a lot of scrutiny because one wrong move can drastically affect the prices. To find the popularity of a particular crypto, you must look at the market cap. If the market cap is high, it means the demand is high and it could be a good option for portfolio diversification.

Pumping and Dumping 

The price of crypto is determined by supply and demand. So many investors deliberately pump, in the essence of buying, or dump, in the essence of selling, a lot of crypto coins. 

This means when an investor deliberately buys a lot of coins, it reduces the supply of that particular coin. The demand rises and so do the prices. This is called pumping. Similarly, when an investor deliberately sells a lot of coins, it then increases the supply of that particular coin which results in reduced demand and lower prices. This is called dumping. 

Use Case or Innovation 

This factor actually determines how a crypto asset performs in the long run. Any crypto asset that solves a real-life problem has a very innovative use case. It also depends on how it performs in the long run. Because of the strong fundamentals, its community is very large and strong. As stated before, the stronger the community, the more the prices, and demand. 

Conclusion 

Trading in cryptocurrency is tricky and dicey. You need to have a detailed idea about the crypto you are investing in for long-term gains. You should know all the factors that determine the rise and fall of crypto prices. Unlike stocks, it does not fall under the governance of any monetary body or government agency. There are no set rules and regulations available for investing. To make your investment easy and hassle-free, consider all the factors that affect any crypto asset.