What controls the price of the crypto currencies?
Cryptocurrencies are fully digital. They have no physical form, like a paper form, and only exist within the code of a blockchain.
That is why some
people believe that they are useless and worth nothing. But that’s not how
pricing works.
Cryptocurrencies are
tradable assets, much like stocks, commodities, securities, and so on. Their
price is determined by how much is available to buy – that’s supply- and how
much interest there is on the market in buying them – that’s called demand –
The relationship between the two ( supply and demand ) determines the price.
If there is
significant demand for a sp
ecific coin, but the currently available supply is
limited, then the price will increase. The demand for coins sometimes rises
regardless of the currency’s true value – this is termed overbought.
Alternatively, if a large quantity of a coin is sold without a solid reason, it
is described as oversold.
Crypto Price
ESSENTIALS
-Price is controled by
the relationship between supply and demand.
-Overbought coins are
in high demand and are usually expensive.
-The total amount of
most cryptocurrencies is limited by max supply.
-Oversold coins are in
high supply and are usually underpriced.
Supply and demand
of cryptocurrencies
The law of supply and
demand is an economic theory that determines the relationship between the
supply of a specific good or service and the demand for it, to see what effect
that has on its price.
The theory describes
the fluctuations in the price of anything that can be exchanged on the market.
If a coin is in short
supply or if the demand for it is high the situation results lead to an
increase in price. Those who wish to buy it are wanting to compete by offering
ever-higher prices. Although, if a cryptocurrency is Available in abundance and
if the demand for it is low, the prices get down.
Generally, the law of
supply and demand predicts that if the demand for particular crypto increases,
the suppliers will make more of it. Manufacturers are wanting to expand their
production to sell larger quantities, intending to profit from more sales.
But this is impossible
when it comes to most cryptocurrencies because of two simple reasons: they are
limited by max supply and they are distributed.
Max supply determines
the total amount of each particular crypto that will ever exist. Take for
example Bitcoin, that number is 21 million.
Over 18 million BTC
have already been mined and the rest are slowly being added to the collection
of total bitcoin supply.
But can't someone just change the method to
release more coins?
The simple answer is
no. On a distributed network, someone who wanted to abuse the system by
double-spending coins simply could not do it unless they were willing to spend
a lot more money than they would gain.