Cryptocurrency is a decentralised digital currency that can be used as a medium of exchange. Cryptocurrencies like Bitcoin, Ethereum, Ripple, etc has value because people attach some value to these digital currencies. The present market capitalisation of Bitcoin is $185,740,448,161. The new entrant Dogecoin has a market capitalisation of $2.12 billion. The crypotocurrency market is continuously on the rise and the people snap up to further increase its price.
There are many factors that affect the price and popularity of these digital currencies. They are
- Demand and supply factor
- Security factors
- Public opinion
- Bitcoin price fluctuations
- Government regulations
Demand and supply factor: This is a simple marketing theory that is applied to the alternate coin market too. When the supply is limited and the demand is ever increasing, there is an automatic surge in the prices of cryptocurrencies. The people always get allured to the new innovations that help them earn a small fortune. That is the reason why there is an exodus in favour of these virtual coins.
Security factors: The blockchain technology that is used to protect the transactions uses lots of electricity. A particular protocol of blockchain technology called the Proof of Service consumes a lot of energy and it, in turn, increases the price. This is because there is a minimum amount of energy required to complete a transaction and successfully add it to the Bitcoin ledger.
Utility: These coins are used to purchase an asset or as a medium of exchange. When more and more people use these coins, the value will increase accordingly. The utility factor is a vital determinant of the price because they lack physical presence and exist only in digital wallets.
Public opinion: Just like a good word of mouth can promote the sales of a product, a favourable opinion can increase the price of these digital coins. We have to take into consideration an important fact that in spite of the public opinion being the driving factor for the success of cryptocurrencies, a small negative opinion can be a spoke in the wheels that can wipe out these coins to a great extent.
Government regulations: Since there is a lack of central agency controlling them, this market has recently grown up to be a hive of dubious activity. Increasing demand to control market manipulation and unfettered increase in the price of these coins, many governments have made attempts to bring in sufficient controls in the form of law that has helped the e-currencies to regain the lost reputation.
The Bitcoin price fluctuations: When there is an increase or decrease in the price of Bitcoins, other coins, especially, Litecoin face inverse price fluctuations. In other words, when the price of Bitcoins increase, the price of Litecoin decreases and vice-versa. This will have an effect on the coin market as a whole.
Media: This plays a significant role in creating price fluctuations in cryptocurrency market. Since the media are owned by a few individual, they can manipulate the market by creating a positive or negative image about these digital currencies. This is another reason why this market is thriving business, recently.
In short, these digital currencies are a new innovation into the financial market. The investors, all over the world, are open to new innovations that fetch some monetary gains out of a trade. There are several factors from government regulations, demand and supply factors, etc that cause an increase in the price of these alternate coin at an alarming rate.