As Bitcoin continues to fall, more investors are questioning whether there is any future in crypto and calling for greater regulation. While this might seem reasonable to those who don’t buy crypto, it’s rather provocative as cryptos cover a market need for non-regulated currency. If traditional financial institutions intervene, cryptos will start behaving like FIAT, thereby losing their real value.
The price, market capitalisation and trading volume of competing coins are some of the value denominators that have fascinated crypto investors since their inception. So what determines cryptocurrency prices?
How Are Cryptocurrency Prices Determined?
Cryptocurrencies aren’t issued by central banks or backed by governments so monetary policy tools, inflation rates and economic growth metrics that typically influence currencies don’t apply to cryptos.
Whether it’s Bitcoin, Ethereum or any other altcoin, the price of cryptocurrencies is determined by supply and demand. To be more precise, the price of a cryptocurrency is determined by two factors: how much interest there is in buying it (demand) and how much of it is available to buy (supply). In this sense, cryptocurrencies aren’t unique.
While these may be the two key factors that determine the price of a cryptocurrency, there are others that have a significant amount of influence on it as well. These factors are:
- Utility
- Competition
- Liquidity
- Technical Analysis
- Mass adoption
- Market sentiment
- Tokenomics
Why Do Crypto Prices Fluctuate So Much?
The value of cryptocurrencies is speculative. Investors buy and sell based on opinions and feelings. When prices fall, investors easily panic and start selling. When prices are skyrocketing, investors may act impulsively and buy at a higher price as they don’t want to miss out on the run. There is even a Fear and Greed Index by CNN that indicates how emotions affect investors’ willingness to pay for stocks, thereby providing a window into whether stocks are fairly priced.
Another problem with prices are “whale investors”. The term “whale” is often used to describe a market participant with enough buying or selling power to create a ‘wave’ that causes a temporary rise or fall in an asset’s price, destabilising the market in the process.
The Problem With Crypto Prices and Related Metrics
The problem with crypto prices and related metrics lies in their overemphasis on and susceptibility to manipulation, leading to an environment where the appearance of value can be easily manufactured. These metrics, which include price and market capitalisation, are often used to legitimise projects beyond their actual worth, creating a cycle where founders feel compelled to inflate their success.
This financialisation of crypto innovation distorts priorities, steering attention away from genuine technical advancement and towards superficial metrics. Consequently, the focus shifts from building sustainable solutions to artificially boosting token prices. As a result, the industry becomes ripe for exploitation with schemes like pump-and-dump and exit scams thriving amidst the frenzy.
To move forward, there’s a pressing need for better metrics that accurately reflect progress and value creation in the crypto space. Rather than fixating on inflated numbers, entrepreneurs and investors should prioritise meaningful indicators that drive sustainable growth and innovation. It’s time to leave behind the obsession with dubious metrics and embrace a more holistic approach to measuring success in the crypto world.
Ignoring Bad Crypto Metrics
Despite the ease with which everything can be measured, better metrics are probably needed. The purpose of measurement is to assign value – it reflects the guiding philosophy behind organisations, markets, and systems. To avoid being led astray, crypto entrepreneurs and investors probably need to rethink the way they measure progress away from mainstream financial institutions.
Consider the profound ways that metrics affect innovation.
In nascent industries like crypto, metrics can be particularly influential in guiding development and investment decisions. However, the reliance on flawed or easily manipulated metrics can lead to distorted incentives and unfavourable outcomes. For example, in the crypto space, metrics like coin prices and market capitalisation are often used as measures of success despite their susceptibility to manipulation.
This reliance on flawed metrics can create a vicious cycle where entrepreneurs feel compelled to chase inflated metrics to compete even if it compromises the integrity of their projects. Additionally, investors may push for strategies that prioritise short-term gains over long-term sustainability, further perpetuating the problem.
To foster genuine innovation and progress, stakeholders in nascent industries must critically evaluate the metrics they use and ensure they accurately reflect value creation and sustainability. They must also refrain from relying on outdated or easily manipulated metrics that can hinder progress and lead to detrimental outcomes.
Different Metrics Unlock Potential
Crypto offers transformative potential by enabling direct transactions between parties without the need for intermediaries. This decentralisation empowers individuals with more control and bargaining power akin to the open nature of the internet, resulting in increased choice, lower costs and innovative products and services.
To realise these benefits, entrepreneurs and investors should probably discard current metrics and develop new ones aligned with the intended impact of crypto applications. By focusing on solving real-world problems and measuring the progress being made in acieving those solutions, they can better assess the value cryptocurrencies bring to their users and society as a whole.
For example, founders aiming to replace traditional payment systems should measure growth and savings for consumers and businesses. These metrics provide a clearer understanding of the impact of crypto technology and help optimise efforts to develop meaningful solutions.
The Bottom Line
While crypto prices may fluctuate wildly and often defy conventional wisdom, they do possess meaning within the context of the broader crypto landscape. However, this meaning is contingent upon a multitude of factors ranging from market sentiment and speculation to technological advancements and adoption trends. By maintaining a critical yet open-minded approach, stakeholders can navigate the complexities of the crypto market and uncover opportunities for growth and innovation.
As cryptocurrencies continue to capture people’s attention and gain in popularity, they offer a novel avenue for engaging in online gaming at casinos. The integration of crypto payments provides players with added convenience, security and anonymity in their transactions.
However, it’s crucial for players to approach this intersection with caution, ensure that they understand the risks involved and prioritise responsible gaming practices. By combining the excitement of online gaming with the innovation of cryptocurrencies, players can enjoy a unique and rewarding experience while navigating the evolving landscape of digital assets.
