Everyone who invests in cryptocurrency wants to find coins that will increase in price. To figure that out, it's important to understand how cryptocurrency prices are determined. You might already know the factors that affect the stock market. Although there are many similarities, the crypto market is its own entity and doesn't follow all the same rules as the stock market.
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What determines cryptocurrency prices?
What determines cryptocurrency prices?
The factors that have the most influence on cryptocurrency prices are:
- Supply
- Demand
- Utility
- Competition
- Availability
- Popularity
Let's take a closer look at each of these factors, as well as some examples of how each one has affected crypto prices.
Supply
Supply
Supply refers to both the maximum number of coins or tokens that a cryptocurrency offers and the amount currently available for purchase. Maximum supplies vary considerably depending on the cryptocurrency; some have maximum supplies in the millions, and others have trillions or even quadrillions of tokens.
A cryptocurrency with a smaller supply is scarcer and will generally carry a higher price as a result. The most prominent example is Bitcoin (BTC 1.37%), which has a fixed maximum supply of 21 million. Bitcoin has typically been the cryptocurrency with the highest price because there will only be 21 million available, with no way of minting more.
Some cryptocurrencies use a strategy called “burning” to reduce their supplies. Tokens are sent to an inaccessible wallet to be removed from circulation. Although this is marketed as a way to increase a cryptocurrency's price, a smaller supply doesn't automatically lead to a higher price. The next factor also needs to be present for this to work.
Demand
Demand
Demand refers to the market's interest in buying a cryptocurrency. If there are more new investors willing to buy a cryptocurrency at its current price than there are sellers, the price will increase.
There are many reasons demand can rise for a cryptocurrency. In 2021, Bitcoin started receiving increased scrutiny because of its environmental impact. Investors began searching for "green cryptocurrencies" that don't require as much energy. That led to more demand for Cardano (ADA 2.36%), a cryptocurrency with a much smaller environmental footprint.
Utility
Utility
Utility is how the cryptocurrency and/or its platform can be used. Most successful cryptocurrency projects have one or more real-world problems that they're aiming to solve.
Bitcoin was designed to be a digital currency that didn't rely on a central authority such as a bank or a government to manage it. Newer cryptocurrencies, such as Ethereum (ETH 0.39%), have launched with smart contract blockchains, meaning they have blockchains that can run self-executing programs.
Competition
Competition
Competition refers to other cryptocurrencies, and, more specifically, the cryptocurrencies that occupy a similar role in the market. Bitcoin and Ethereum are competitors in the sense that they're both types of cryptocurrency, but they're not direct competitors. Bitcoin is now seen primarily as a digital store of value, and Ethereum is a smart contract blockchain.
Ethereum's direct competitors are other blockchains with smart contract functionality, including Cardano and Solana (SOL 5.72%). Since these projects all have similar purposes, many users will gravitate toward just one. If most developers start using Solana, it would negatively affect Ethereum and Cardano.
Availability
Availability
Availability refers to how easy it is to buy a cryptocurrency. The more widely available a cryptocurrency is, the more likely that people will invest in it. While some enthusiasts are willing to go on unregulated exchanges to obtain cryptocurrencies that catch their eye, most investors stick to the top crypto exchanges such as Coinbase Global (COIN 10.53%).
Cryptocurrencies often see their prices increase when they get listed on a major exchange. There's even a term for this -- the “Coinbase effect” -- meaning the bump that cryptocurrencies get from being on Coinbase. An analysis by crypto research firm Messari found that cryptocurrencies gained an average of 91% in the five days after the announcement of a Coinbase listing.
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Popularity
Popularity
Although it would seem that utility and technology should be most important for cryptocurrency investments, that's not always the case. Popularity matters quite a bit. Look no further than Dogecoin (DOGE 4.6%) and Shiba Inu (SHIB 0.77%), two meme coins that have ranked among the largest cryptocurrencies in the world.
Popularity alone doesn't lead to long-term success, however. Cryptocurrencies that rely on popularity over functionality generally fall off quickly once the hype ends. Eventually, they run out of people willing to buy because they don't offer any actual uses.
A lack of popularity can also be an issue, even if a cryptocurrency checks all the boxes. Neo (NEO 2.41%) is one example of a cryptocurrency that does well from a technology perspective but has disappointed investors due to poor marketing.
There are quite a few other factors that can affect cryptocurrency prices, but the ones we've gone over here have the biggest impact. If you're evaluating a cryptocurrency as an investment, it's a good idea to consider how it does in each of these areas.
Lyle Daly has positions in Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Cardano, Coinbase Global, Ethereum, and Solana. The Motley Fool has a disclosure policy.
FAQs
A cryptocurrency with a smaller supply is scarcer and will generally carry a higher price as a result. The most prominent example is Bitcoin (BTC -1.03%), which has a fixed maximum supply of 21 million.
What does the Motley Fool recommend for crypto? ›
The Motley Fool has positions in and recommends Aave, Bitcoin, Ethereum, Fetch, Goldman Sachs Group, and Solana. The Motley Fool recommends Monero and Thorchain.
How are cryptocurrency prices determined? ›
The price of cryptocurrency is determined by supply and demand. Most cryptocurrencies outline supply in their white papers. Meanwhile, demand is determined by multiple factors — like general interest in cryptocurrency, the project's utility, and competition.
Which crypto can give 1000x in 2024? ›
Being a project that stands out for several reasons, EarthMeta could potentially be the next 1000x in crypto space. Since the project integrates AI with the Metaverse, creating a decentralized digital world, it allows users to own, govern, and interact with virtual cities and assets, providing a unique experience.
What predicts crypto prices? ›
Technical indicators are the most common way of predicting crypto price movements. One of the most used technical indicators are moving averages. Insights are drawn from whether the price is above or below important moving averages like the 21-day, 50-day, and 200-day averages.
Does Motley Fool outperform the market? ›
Does Motley Fool beat the market? Yes, Motley Fool stock picks have historically beat the market significantly. Their Stock Advisor picks have returned over 5x more than the S&P 500 over the past 20 years.
What is the best crypto to invest $1000 in? ›
CRYPTO: XRP
This digital asset might be the best $1,000 addition to your portfolio today. Learn why the cryptocurrency looks ready to thrive after dealing with its most obvious challenge. The cryptocurrency market is soaring in 2024.
Who decides the value of cryptocurrency? ›
Like all forms of currency, Bitcoin is given value by its users, supply, and demand. As long as it maintains the attributes associated with money and there is demand for it, it will remain a means of exchange, a store of value, and another way for investors to speculate, regardless of its monetary value.
What dictates the price of a cryptocurrency? ›
The price of cryptocurrencies - whether that's Bitcoin, Ethereum, or any other altcoin - is determined by supply and demand. Put simply, the price of a given cryptocurrency is determined by how much interest there is in the market to buy (demand) as well as how much is available to buy (supply).
What makes the price of crypto go up or down? ›
The three primary factors that drive crypto value are: supply and demand, market perception, and competition. Most cryptocurrencies implement mechanisms to limit supply and prevent inflation. Market perception is closely related to market value. The higher one's market perception, the more one is willing to pay for it.
7 Cryptos With Explosive 5X Potential by 2025
- Ethereum (ETH-USD): Even with its relatively high price ETH has 5x upside.
- XRP (XRP-USD): XRP is free legally and remains the top cross-border transaction token.
- Cardano (ADA-USD): Strong fundamentals and low price are the prime factors for Cardano.
Which crypto will give 1000x? ›
The next cryptocurrency offering 1000x growth potential is Base Dawgz. Its multi-chain functionality allows $DAWGZ to seamlessly jump between Base, Solana, Binance, Ethereum, and Avalanche blockchains. This sets it apart from other doge-themed meme coins and offers unique investment opportunities.
Which crypto has the most potential? ›
The Highest Potential Cryptos to Buy
- PlayDoge – Fast-growing crypto inspired by Doge meme, with viral potential.
- The Meme Games – Hot new Olympic-themed coin with popular meme characters.
- Sealana – The next Solana meme coin to explode with 100x growth potential.
What will $100 of bitcoin be worth in 2030? ›
If Wood is correct and Bitcoin reaches $3.8 million, a $100 investment in Bitcoin today would be worth $5,510 in 2030. This translates to a compounded annual growth rate (CAGR) of over 95%. While the prediction is bullish, Bitcoin's 14-year CAGR is well over 220%, so it is not entirely out of the question.
What is the algorithm for crypto prices? ›
The best algorithms for predicting the price of a cryptocurrency are XGBoost with Particle Swarm Optimization (PSO) 1, Long Short-Term Memory (LSTM) 3, and Random Forest 2. These algorithms have been found to provide accurate predictions with low error rates.
Will crypto be around in 10 years? ›
Key Takeaways. Bitcoin, the cryptocurrency, is most likely to remain popular with speculators over the next decade. Bitcoin, the blockchain, will probably continue to be developed to address long-standing issues like scalability and security.
What is the best crypto to invest in now? ›
The top cryptocurrencies by market cap are bitcoin and ethereum. Together, they make up about 71% of the global cryptocurrency market cap. Beyond ethereum, the most valuable altcoins include BNB, solana and XRP.
What is the Motley Fool's prediction for Ethereum? ›
VanEck's Matthew Sigel and Patrick Bush expect its price to more than triple to $11,800 by 2030, while Ark Invest's Cathie Wood says it could be worth a whopping $166,000 by 2032.
Which is the next crypto to boom? ›
Top 10 Cryptos in 2024
Coin | Market Capitalization | Current Price |
---|
Binance Coin (BNB) | $76 billion | $519.05 |
Solana (SOL) | $62 billion | $134 |
Ripple (XRP) | $25 billion | $0.46 |
Dogecoin (DOGE) | $15 billion | $0.10 |
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