Once I asked on Reddit what’s the reason crypto prices go up all of a sudden and then drop like a rock thrown out from the hilltop. It was back when I started my journey on Hive and was heavily influenced by the market with the price going up and down drastically overnight.

geralt on pixabay

So, Redditors— they answered me in the easiest way possible— `the same thing that determines the price of daily commodities; demand and supply— and to this date, the idea still remains the same. Along with the public demand and market supply, it also varies depending on public sentiment, the news cycle, market events, scarcity, and more.

Well, it’s the universal rule for all the price-things out there yet, it’s not as easy as it seems to understand. If it was, then everybody would understand those Green & Red lines in crypto charts— the thing I have never understood, and probably it’s not for my lazy brain.

Okay, so, why do the prices fluctuate so often? Why can't it be stable like any Fiat currency?

There exist a plethora of factors that determine the value of any cryptocurrency; i.e. Bitcoin. Being the king of all crypto in terms of popularity and value, let’s see what determines its price in the market.

Scarcity in the Market

Scarcity is the primary thing that helps the price go up in seconds followed by demand in the market. If we look at the market, the real one, the price goes up overnight for the products that are in demand. Wait for a day or two— you will see the scarcity in the market. What’s interesting— offer an increased price to the seller, your items will be in front of you out of nowhere— the same product was missing just a moment ago.

In the crypto scenario, sometimes, the manipulators of the market hold the coin with this aim to create a scarcity in the open market and the buyers try to convince the sellers by offering a more price than before— and the end result, it goes up— as simple as that.

For example, currently, there are around 18 to 19 million Bitcoins circulated in the market. And the minting will stop right at 21 million; only 2 million away from current circulation which the experts consider the greatest weapon in escalating the appeal in the market by regulating built-in scarcity.

“There’s a fixed supply but increasing demand,” Alexis Johnson, president of Light Node Media.

For the extreme volatility nature of crypto, Nelson Merchan, Light Node Media co-founder said,

“It actually does almost kind of seem like a scam. I’m a big believer that if it’s not in cash, you don’t really have that money because, in crypto, anything can drop dramatically overnight.”

And he suggests investing only 1-5% of your money in crypto to ensure the security of the financial asset you have. But what do we see in reality?

Many crypto maniacs are doing totally the opposite of what Merchan suggests— investing every penny they have and bagging the prize home. Thanks to the uptrend of crypto prices— even though it goes down for a while, it eventually shows bullishness in no time. It’s like a gamble— you never know where’d you land on— and, if you are lucky, a fatty wallet awaits you and vice-versa.

Despite the volatility and risks associated, millions of people out there are investing the majority of their assets and thriving. But it’s the “cryptocurrency.” Anything can happen here and there is more than just supply and demand in determining the fate of the crypto holders and investors.

Let’s see where they end.

[this is the 1st part of an ongoing series that will discuss the factors that affect the crypto price. so, stay tuned]

[All content is mine unless otherwise stated]