| Updated: October 30, 2024Practice has so far shown that there are several key factors, which tend to impact the value of cryptocurrencies.
Software upgrades
Changes in software of a given cryptocurrency may occur at any time and their implications could affect its value.
For example, a matter of intense debate within the Bitcoin community has been the upgrade of the cryptocurrency’s core software functions. There have been concerns that the speed of Bitcoin transactions was not fast enough. It may take 30 minutes or more for a single transaction to be processed, which is the reason why debates eventually focused on improving that aspect. As a result, Bitcoin Cash was created, after which the value of Bitcoin against the US Dollar continued to increase, hitting fresh all-time highs, currently above $9 000 per coin.
Wallet upgrades
All cryptocurrencies require a reliable storage solution, or wallet. Since a cryptocurrency represents software in its essence, the software configuration of the wallet needs to be compatible with that particular cryptocurrency.
In case there still is no reliable wallet for a given cryptocurrency, the latter will surely be of no interest to investors who are not technically proficient.
In case, however, a given cryptocurrency has a good wallet solution, it becomes much more accessible to a larger number of investors, which, in turn, boosts its value.
In other words, if a cryptocurrency does not have a reliable storage solution yet, this may serve as an indication that it is undervalued.
If you purchase a particular cryptocurrency right after its first good-quality wallet is launched, you may have a good chance of generating decent gains in a short term.
Listings on crypto exchanges
Cryptocurrency traders tend to pay attention to major announcements made by exchanges. When a large exchange such as Coinbase, CEX, Bitfinex or Poloniex announces that it intends to add a particular cryptocurrency to its existing list of assets, it is very likely the news will trigger investors’ interest.
When Litecoin, for example, was listed as a trading instrument on Coinbase in mid-2017, the cryptocurrency was exchanged for about $16 per coin. Almost half a year after its launch on that particular exchange the value of Litecoin against the US Dollar increased more than four times.
Due to investors’ interest the price of the cryptocurrency has formed a discernible uptrend, as can be seen on the weekly chart of LTC/USD.
Public hype
Positive or negative hype could influence the value of cryptocurrencies. It is quite similar to the case when fake news affects the value of a stock. Some traders may prefer to make a decision based on hype and will usually look to close their positions on the cryptocurrency market before the hype has cooled off.
Regulation by governments
Actions taken by the government against a particular cryptocurrency’s community tend to cause a significant impact on its value.
For instance, Venezuelan police have used made-up charges in order to arrest Bitcoin miners. This way individuals and communities engaged in the mining process were forced to keep low profile or to shift to another digital currency – Ether, Litecoin, Dash etc.
Additionally, any decision by a country’s regulatory authority in regard to a particular cryptocurrency will certainly influence its valuation. Some Initial Coin Offerings have already been prohibited by financial regulators, as they could turn out to be elaborated ”Pump and Dump” schemes.
Therefore, as a trader, you should keep track of changes in government regulation, while avoiding cryptocurrencies that could become part of the black list of some government agency.
Platform applications
There are cryptocurrency platforms, on which other applications could be hosted. Ethereum serves as a perfect example. Also known as ”decentralized apps”, such applications could be associated with a digital currency (token) of their own. In case one decentralized app tends to perform quite successfully, this may have a favorable effect on the value of the underlying platform currency.
According to experts in the field, the value of the platform cryptocurrency should not be correlated with the value of the tokens, at least in theory.
In practice, however, short-term price movement of Ether could be driven by the successful performance of one of the platform’s decentralized apps. Thus, if you focus on trading platform cryptocurrencies such as Ether, you should also pay a close attention to apps hosted on the platform.