The cryptocurrency market is a volatile place. Endless articles compare the price of bitcoin to other assets, such as gold or stocks. These comparisons can help understand how volatile the market can be, but they usually don’t tell you much about the value of a given coin.
In this guide, we will explain each aspect of cryptocurrency pricing to better understand what factors affect prices and how they relate to each other.
Cryptocurrency prices are constantly changing
Cryptocurrency prices are constantly changing and can vary significantly between exchanges. Therefore, the price of a cryptocurrency on one exchange can be significantly different from the price on another.
This is because there are many factors that affect cryptocurrency prices. One factor is the number of buyers and sellers; if more people want to buy than sell, the price will increase (because sellers are more willing to accept less money for their coins).
Another factor is whether or not people hold onto their cryptocurrencies or use them. If most holders spend their money instead of hoarding it, it reduces the demand for that particular coin. And thus it becomes less valuable for anyone who wants to buy into that particular market.
Once again, we see no simple answer to understanding why cryptocurrencies behave the way they do. But knowing these basic principles can help you make better decisions when investing in crypto!
Cryptocurrency prices can vary significantly between exchanges.
Prices on different exchanges can vary significantly for the same cryptocurrency. For example, the Bitcoin (BTC) price on Binance, a centralized exchange, is often higher than what you can find on Poloniex or Kraken.
This discrepancy exists because they do not compete in the same way that eBay and Amazon do. These exchanges are not selling the same product and are not trying to lure your business away from its competitors.
Understanding why this happens is essential to making smart cryptocurrency investments. Especially if a particular cryptocurrency has caught your eye, its price seems poor compared to others with similar characteristics and goals.
Cryptocurrency prices are meaningless without context
Price is an inferior measure of the utility of a cryptocurrency.
Price is also a weak measure of the potential of a cryptocurrency.
It’s easy to get caught up in the hype surrounding Bitcoin and other cryptocurrencies, but it’s important to remember that many factors contribute to a cryptocurrency’s success.
A high market cap alone does not mean it is worth investing in, and investors should always consider more than just price when choosing which coins to invest in.
Bitcoin price and coin market value are not the same thing
The price of bitcoin is the price of bitcoin on a particular exchange. The market value (or total market value) of bitcoin is the total value of all bitcoins in circulation times their circulating supply.
The two numbers are not equal and do not matter even if they were.
Why? First, consider that many exchanges’ prices are not quoted in USD. Instead, they are priced accordingly BTC/USD or another trading pair where “BTC” is short for “bitcoin”. So when you see a quote like “$5100” it’s referring to 1 BTC (1 Bitcoin) and not 5100 USD/EUR/whatever.
You can think of this as an exchange selling its currency at whatever rate it wants. So if it wants to set its BTC-denominated prices at a higher rate than other exchanges do because people will pay more for them there, it can do so by setting higher rates.
As such, people will buy more BTCs because there is less risk involved if they use US dollars instead of Euros or Pounds Sterling. As a result, there will be no exchange rate volatility between currencies.
You can make money on cryptocurrency while the market is going down
- You can buy a cryptocurrency and hold it for the long term in the hope that it will increase in value.
- You can also invest in cryptocurrency by buying tokens from projects that you think have a good chance of success, but with the understanding that they may not be successful.
- You can exchange coins for other coins or fiat currencies (like dollars).
- You can buy and sell contracts such as options or futures.
- You can use your crypto as payment for goods or services (eg pay rent with bitcoin) or simply as a “store of value”. You may not be able to withdraw it immediately, but since it has been shown to increase in value over time, someone will always be willing to buy it from you at some point down the road
Predicting cryptocurrency prices is notoriously inaccurate
The difficulty in predicting cryptocurrency prices is linked to the unpredictable nature of new technologies.
The technology behind cryptocurrencies is still in its infancy, making it difficult to predict how they will evolve over time. This unpredictability is compounded by many different factors that affect cryptocurrency prices. Most notably, government regulation and market sentiment (investor sentiment).
If you are interested in using your knowledge of cryptocurrencies to earn some money on the side, it is worth considering whether this type of investment might be for you.
There is more to cryptocurrency than just the price!
There is more to cryptocurrency than just the price!
Cryptocurrency prices can tell you a lot about the market, but it’s not the only thing that matters. Many other factors contribute to the value of a coin:
- Market value: this is how much money you would get if you could liquidate every single coin in circulation. A high market cap means lots of coins are available for trading, making it easy for buyers and sellers to match each other.
- Transaction volume: How much activity does each cryptocurrency see? This number shows how often people use your crypto for transactions and purchases compared to other cryptos. It may be worth buying if one crypto has higher transaction volumes than another but lower prices.
Cryptocurrencies are volatile and complex.
Therefore, it is important not to judge based on cryptocurrency prices alone. Instead, many factors influence a currency’s value, including new technological developments and government regulation.
Suppose you are interested in buying or selling cryptocurrencies. In that case, we recommend doing it on a reputable exchange.
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