The ten most important factors that influence cryptocurrency prices

1. Best Cryptocurrency Investment Prices

Volatility is what makes cryptocurrency investment so rewarding (and risky). However, there are too many variables, often making it feel unpredictable. Even weeks after a rebound or a flash crash, most people still don't understand what caused it. If you don't, they will catch you off guard again next time. The good news is that you don't need to know price movements at all times. It all depends on when, how, and where you trade. As for the types of cryptocurrency prices:

Long-term price trends are the most reliable and predictable. Short-term price risks are higher, and while they may sometimes work in your favor, they ultimately realign with long-term prices.
Platform prices vary with liquidity. Centralized exchanges (CEX) tend to have the most accurate prices, while decentralized exchanges (DEX) do not. Unless you trade on platforms like Uniswap, price discrepancies on smaller DEXs can exceed 10% (you can take advantage of this through arbitrage trading).
The most reliable cryptocurrency price trackers are decentralized oracles, such as Tellor. This is because they aggregate prices from many different trading platforms to find the most common and accurate price. You can start using them right now by watching such price information. Let's assume we are examining the mid/long-term prices of oracles and major trading platforms; let's look at the top 10 influencing factors.

2. Top 10 Factors Influencing Cryptocurrency Prices

These factors will help you predict the prices of tokens like Bitcoin and altcoins like Uniswap v3, but that doesn't mean these factors can explain every movement. Cryptocurrency prices are complex: sometimes it's the second factor. Sometimes there are five factors at once. Here are the ten most influential factors, in no particular order.

1) Token Supply and Demand The most influential factors are often the most common and straightforward. Prices rise when more people want to buy. Prices rise when the circulating coins decrease. Supply and demand tend to balance each other. Demand often increases as cryptocurrency adoption is just beginning (the number of cryptocurrency users is between 300 million and 1 billion). As for token supply, the immutability, trustlessness, and autonomy of the blockchain are very important. Otherwise, founders could create tokens out of thin air at any time. Excess supply also does not help prices rise: ideally, the circulating supply and maximum supply should be close. Protocols use different methods to reduce existing supply, such as:

Token burning: Sending cryptocurrency to an inaccessible wallet address.
Halving: Reducing validator block rewards by 50% after reaching a certain block number.
Classic staking: Ensuring the security of proof-of-stake (PoS) networks by locking tokens long-term in exchange for interest rewards.
Proof-of-work (PoW) currencies like Bitcoin are most affected by production costs. This is why prices rise when electricity costs, the number of nodes, or hash difficulty increases. Note: PoW is a consensus model based on computational power and reward competition. The PoS model selects block winners based on the number of tokens, lock duration, and randomness. The consensus model determines security, decentralization, and network efficiency (see the blockchain trilemma).

2) Global Economy Decentralization may give the impression that cryptocurrencies are unaffected by global events. Past experiences show that this is not the case. Financial and political influences have had a direct impact on mid-term cryptocurrency prices (e.g., the onset of Covid-19 or the Russia-Ukraine war). It can be argued that in black swan events, cryptocurrencies are more vulnerable than fiat currencies. This is because investors can choose stable currencies like the Swiss Franc, Japanese Yen, or Norwegian Krone. In cryptocurrencies, you cannot do this because it involves multiple countries, and almost all altcoins are related to Bitcoin or Ethereum. Fortunately, cryptocurrency prices recover faster than fiat currencies. This is why these "bad" events often present the best entry opportunities.

3) Accessibility of Cryptocurrencies For those who have used cryptocurrencies for years, it is easy to overestimate how many people have access to them. By the end of 2022, perhaps 1 billion people had ever purchased cryptocurrencies, but how many of them are active users maintaining long-term positions in the market? Adoption rates are not as high as you might think, and improving these features will benefit cryptocurrency prices and liquidity. This does not mean that coins should rise simply because they attract more people. There should be enough entry and exit points to seamlessly convert fiat to cryptocurrency. This is why such news can cause short-term and long-term price increases:

Payment processors accepting cryptocurrency payments
Payment companies distributing Bitcoin ATMs, crypto cards, etc.
Trading platforms offering flexible deposit and withdrawal options
Local stores recognizing Bitcoin for purchases
Sending cryptocurrency to anyone with a no-KYC wallet
Restrictions on accessibility do not lower prices but slow their growth. Those who already use cryptocurrencies are not affected as much as new adopters. For example, some countries ban cryptocurrencies, but millions of citizens still use them.

4) Infrastructure Updates Changes in blue-chip cryptocurrencies are minimal because their prices are tied to utility. Due to the blockchain trilemma, secure and decentralized networks cannot scale well. This means that higher prices will increase network costs and slow down transaction speeds, reducing demand and lowering cryptocurrency prices again. It’s not that they are not valuable enough, but they cannot sustain higher prices yet. If ETH rises from $1,000 to $10,000, it will lose the value of its vast ecosystem because no one is willing to suddenly pay ten times the fees. Infrastructure updates reduce transaction times and costs, allowing the network to manage more users and higher token prices. For example, after the PoS update in December 2020, Ethereum first broke through $600 and then $2,000. What do you think will happen after the merge?

5) Media Announcements Media announcements can easily be confused with infrastructure updates. This is because they occur together and amplify each other. The difference is that media announcements are short-term and speculative. The most common reaction is "buy the rumor, sell the news." In the case of the merge, traders accumulated ETH for weeks. On the day of the update, most goods are sold because there is no other reason to justify the price skyrocketing again. Like a spring, Ethereum plummeted in September 2013 (but not for long). Media announcements can be:

Promotions (e.g., Crypto.com buying a stadium)
Events (e.g., Binance network attack)
Team announcements (e.g., Cardano's roadmap)
You can distinguish between updates because these updates do not affect project functionality or performance. If Binance users lose $10 million in a phishing attack, it has nothing to do with BNB coin or the BSC chain. If Cardano releases a roadmap phase, it does not guarantee they will fulfill those promises (or that there won't be years of delays). The media drives up cryptocurrency prices before events, and subsequent updates can cause lasting price increases.

6) Inflation of Fiat Currency While fiat currencies and cryptocurrencies are related, they are not proportional. Inflation of fiat currency pushes up cryptocurrency prices. If people lose confidence in their national currency, it may accelerate the adoption and surge of cryptocurrencies. Similar to the second point, fiat currency can put cryptocurrency prices at risk. So far, the most popular cryptocurrency pairs are dollar-based. This is because the dollar is the world reserve currency, benefiting the U.S. with the strongest liquidity, money printing ability, and borrowing capacity. But by 2022, the situation suddenly changed. We are facing the financial consequences of 2020 and events that occurred before that. The U.S. faces over $28 trillion in public debt, near-zero interest rates, and over 8% inflation (compared to 1% inflation in 2020). When interest rates drop to zero, the simplest solution to debt is to print money. If new dollars are misallocated, inflation will devalue the currency, affecting cryptocurrencies. If a coin like Bitcoin serves as a store of value, it may be seen as gold and reach new historical highs. Otherwise, it will devalue like anything else.

7) The Law of the Heart Just as fiat currency can influence cryptocurrencies, one token can also influence another token. This is not necessarily because they are in the same ecosystem or related. According to Richard Heart, this is because they are connected through liquidity (also known as the "law of the heart"). Liquidity accelerates the adoption of cryptocurrencies (see point three) because it is the number of tokens that can be traded immediately. In fact, you can directly exchange two tokens, causing the prices of both tokens to fluctuate simultaneously. Similar to reserve currencies, when cryptocurrencies have more token pairs on different platforms, they become more valuable. Bitcoin has hundreds of altcoin and fiat currency pairs, so its price tends to rise over the long term. Similarly, PulseChain is the first Ethereum fork to inherit the complete system state. Unlike other networks, all Ethereum tokens and NFTs can be directly traded in PulseChain pairs. Therefore, there is ample reason to expect cryptocurrency prices to rise.

8) Revenue Revenue is closely related to supply (see point one) and affects security, efficiency, and thus price. For example, Bitcoin generates a stable income of $20 million daily through 1 million mining nodes (note that miners may own multiple nodes). By around 2018, income was already this high, which explains why there are now more validators. Therefore, Bitcoin is more decentralized and secure, giving more users confidence to hold it. Revenue also contributes to the price increase of protocol and dApp tokens. DeFi platforms can leverage revenue to provide increased APY rewards to users. This can attract users and improve decentralization. Alternatively, they can invest it in features that enhance utility, ultimately increasing prices. Platform revenue should not be confused with investor returns. When rewards exceed service fees, high-yield platforms still may not generate revenue. If interest rewards come from inflation or later "investors," then the token price will not be sustainable.

9) Bitcoin-Related Lag The prices of most cryptocurrencies are related to Bitcoin's price, but they do not fluctuate simultaneously. When market trends change, investors tend to trade the largest tokens first. These blue-chip projects have high and stable trading volumes, making them safer when trends reverse. Assuming this trend continues, they will profit from these cryptocurrencies before reinvesting in other cryptocurrencies that have not yet risen. This can be any token in the top 50 on CoinMarketCap. Micro-cap tokens have lower trading volumes, so after Bitcoin lags, they will reflect the same price trajectory but amplified. If Bitcoin rises by 10%, these assets may rise by 100%. This is beneficial but also dangerous, as a 30% drop in Bitcoin is enough to cause small coins to lose 90% or be completely liquidated. The smaller the trading volume, the greater the lag, and if the trend persists, the lag is usually 1 to 3 weeks. If Bitcoin's direction recovers before other micro-cap updates, the lag will be canceled, and prices will remain unchanged. However, if tokens are closely related within an ecosystem (e.g., TraderJoe on Avalanche), prices can reflect immediately.

10) Cryptocurrency Price Manipulation Finally, we cannot ignore the reality of price manipulation. While blockchains may be decentralized, the crypto market is not. Trading can be a zero-sum game, where the best interest of others is to confuse and make you lose money (at least in predictive markets like futures and options). The larger the amount you invest, the more complex the emotions can become, potentially leading to mistakes. Examples of manipulation include:

Pump-and-dump groups selling worthless tokens at high prices
Using media news to rationalize potential pumps
Trading with oneself to create false trading volume (wash trading)
Creating bull and bear traps to trigger stop-losses and short squeezes before actual rebounds (or crashes)
This involves not only understanding the factors that influence cryptocurrency prices but also understanding how other factors affect it. If many people believe Bitcoin will reach a specific price, trading at under a thousand dollars may feel safer in case it reverses.

3. 5 Reasons for Cryptocurrency Price Changes

The top ten factors are external variables that can change the direction of cryptocurrency prices. However, cryptocurrency prices can also affect themselves, as traders change positions based on market direction. Therefore, assuming these ten factors do not intervene, cryptocurrency prices will still change. Imagine a token like Ethereum rising tenfold due to demand and speculation. What will happen is:

1) Increased Network Costs Network fees use the native currency (ETH), so as long as the token rises, network fees will increase accordingly. If the fee per transaction is $0.01 to $0.10, there is no problem. If the average price exceeds $10, then a tenfold price increase will turn into $100. Once prices rise, inefficient charging will become paralyzed. Users do not want to pay these fees, so they will stop using the network until prices drop. The tokens most susceptible to price drops are those with large ecosystems and low scalability blockchains.

2) Trading Volume Cycles If Bitcoin or Ethereum's price rises for several months without crashing, eventually all crypto projects will mimic it. As investors gain confidence, they will look into small-cap tokens with long-term potential. Small projects can rise 10 to 100 times in a few weeks, which is more attractive than the returns from the top 10 tokens. The trading demand for Bitcoin gets dispersed into smaller projects with a lag of a few weeks. It enters the top 50 tokens, ecosystem tokens, Metaverse tokens, NFTs, and finally ends with meme tokens. Profitable meme coins often signal the end of a cycle, followed by a Bitcoin crash, and everyone reinvests in blue-chip cryptocurrencies.

3) Overall Market Direction Market conditions change investor and price behavior. For example, the goal in a bear market is to buy the dip and avoid losses. There is significant selling pressure, so any price increase may lead to substantial selling rather than parabolic growth. It is common to sell when prices rise and wait when they fall. The "goal" in a bull market is to profit first. Because if you are late, you will be unprepared for the upcoming bear market. For long-term bulls, selling is replaced by holding, and it seems like any purchase at any time is a good deal. But is it really?

4) Profit-Taking and Reinvestment Have you ever felt that price movements are contrary to your plans? Your predictions may not necessarily be wrong. Instead, there may be larger early investors who can profit from smaller price changes. If others take profits first, it may trigger stop-loss orders for others, causing you to lose overnight. If you consider buying a token that is rising in price, the focus is not on whether it will continue to rise. It is about how many people may have bought before you and are ready to exit.

5) Capacity and Network Congestion Volatile prices may attract high-frequency traders and overload the network. As larger investors enter the market, smaller trades lose priority. If you do not want your orders to be delayed for hours, you must pay extra to increase priority. Congestion and network fees are related, and both will lower cryptocurrency prices.

How to Profit from Any Cryptocurrency Price

While you wait for the right price to buy, countless other traders are also waiting. When everyone waits to buy low and sell high, it is easy to predict (and manipulate). But regardless of the price direction, there are ways to profit. When prices drop, you can profit by using futures, options, and short positions. For example, if you believe the merge will cause Ethereum to crash, you can open a short position on ETH and profit when it crashes. Indeed. If this is a boring sideways market, now is the best time to use DeFi tools. Because when token pairs do not change, the yield is highest. This is your opportunity to accumulate funds without having to buy through staking and borrowing. When you can profit anywhere, you are always ready to enjoy the best cryptocurrency prices. You will make enough profit to exit before a bearish reversal, and you will have enough funds to buy at the bottom.

4. Frequently Asked Questions

1) Can cryptocurrency prices go to zero? Cryptocurrency prices do not go to zero because they are worthless, but because of security issues. It could be a consensus mechanism error, insufficient validators, or an imbalanced token distribution. Even after crypto audits, network attackers sometimes discover code errors that allow for infinite money exploits. Do your research to avoid these events, or at least diversify enough.

2) Will cryptocurrency prices continue to rise? Due to their intrinsic value, cryptocurrency prices will rise in the long term. Decades from now, many tokens may no longer exist, and the leading tokens we know may be replaced. But cryptocurrencies will not disappear: even 100 years from now, society may still use some blockchain system. If you hold widely adopted cryptocurrencies like Ethereum, their prices will inevitably rise.

3) Should I compare cryptocurrency prices with market capitalization? Cryptocurrency price multiplied by token supply equals market capitalization. Contrary to popular belief, it has nothing to do with company size or price predictions. Developers can change token supply to any number they want, and if the supply does not change, observing price history will provide the same information.

4) Can you profit from cryptocurrency prices without selling? You not only can but should. DeFi services allow you to extract value while holding tokens on the network/protocol. You can profit through staking, borrowing, or yield farming without selling your initial amount. In this way, users can help their tokens gain liquidity and a stable floor price. Therefore, if you want to sell, the price may be higher than your entry price, plus all the rewards earned in the process.

5) Should I try to predict cryptocurrency prices? You should predict cryptocurrency prices based on your trading style. If your strategy is to hold long-term, you must predict/analyze which tokens have the greatest utility/value/price potential. For high-frequency trading, prediction is about technical and news analysis. In futures and options, prediction is about betting and taking asymmetric risks (either small losses or big wins). You cannot always predict all cryptocurrency prices. So you should choose a strategy that favors your probabilities. Dollar-cost averaging, holding, and value investing are time-tested and recommended investment methods.

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