The price of cryptocurrencies, like any other asset class, are driven by a multitude of factors. Here is a non-exhaustive list of factors that influence cryptocurrency price movements.
At a basic level, the price of cryptocurrencies will be driven by its availability. The scarcer a digital coin is, the higher its price levels. In contrast, a virtual currency with an abundant supply will likely experience lower price levels.
In the case ofproof-of-workblockchains such asBitcoin, the mining difficulty of a coin can also have a direct relationship with its price. A higher mining difficulty means that it is harder to mine an additional unit of a coin. This can have an impact on a coins perceived value, and subsequently its price, as increasing a coins supply will require more computing power to be used in the mining process.
A key factor that will affect the price of cryptocurrencies is its perceived utility. A virtual currency that possess no practical use will likely be viewed as having no value, which may be reflected with lower market price levels. For example, Ethers price movements can be attributed to its perceived practical utility, that being a users ability to build and launch their owndecentralized applicationson theEthereumplatform.
Market News can also affect the a coins price movements. Positive or negative news reporting can be a heavy influencer of general market sentiment regarding a particular coin. Media reporting about a network hack for example is likely to drive prices down, whereas, coverage about a coins increasing adoption can result in positive market sentiment that drives a coins market price upward.