Basically, the prices of Bitcoin and Ethereum are driven by supply and demand. However, a few other factors also seem to have an impact on their prices. Ultimately, it is the perception of their value, as in the case of equities, that drives their price. Revenue and returns expectation also impacts the price of these cryptocurrencies. Read on to have a better understanding of the factors affecting their price.
News releases have an impact on their prices. For example, the news release which stated that Satoshi Nakamoto is actually Craig Wright drove the price of Bitcoin up. This is because the press release provided free publicity for Bitcoin. People’s interest in Bitcoin grew and this increased the demand for the digital currency. The same is the case with Ethereum. News releases have the potential to drive its price as well.
#2: Ecosystem Expansion
Both Bitcoin and Ethereum make use of the blockchain technology. However, they differ in terms of capability and purpose. While Bitcoin offers a peer-to-peer digital cash system, Ethereum focuses on running the codes of decentralized applications. As ecosystem around these digital currencies expands, the demand for these altcoins will also increase. For example, the ability to buy goods on Amazon at a discount or obtain Starbucks vouchers can drive the price of Bitcoin up. Similarly, the price of Ethereum will be impacted as its smart contract feature gets wider acceptance.
#3: Government Policy
The operation of digital currencies is independent of the governments of countries around the world. However, government policies do have an impact on the prices of these currencies. For example, the recent developments in China can have an in impact on the price of digital currencies.
Similarly, banning of digital currencies by Russia or pushing their growth by countries like U.K. will cause the price of altcoins to shift. Prices of cryptocurrencies will change if the IMF releases reports encouraging or discouraging governments to take a lenient view on digital currencies.
The blockchain technology employed by digital currencies has been subjected to scrutiny on the assumption that it cannot send transactions cheaply due to block-size limitations. This may ultimately be a governance related problem, but it does have some amount of influence on price changes.
This factor is related to technology and the internal fractiousness as far as the development of Bitcoin and Ethereum are concerned can affect belief in the system and hence impact the perception of value. This, in turn, affects the price of the cryptocurrencies. Governance has a crucial role to play in determining value. This is because of the confidence or uncertainty involved in steering the community. Open source projects like Bitcoin and Ethereum generally encounter leadership and direction issues. How and when such issues are resolved is crucial and they do have an influence on the price stability of altcoins.
The value of cryptocurrencies is also dependent on their source or where they come from. For instance, the value of bank notes received as proceeds for a executing a criminal activity will be less than that received otherwise. There are black Bitcoins and white Bitcoins. Therefore, there could be a difference in their price as well.
Competition does have a role to play in determining the value of cryptocurrencies. Altcoins that are competing with each other could bring about changes in supply and demand and thereby influence their prices.
In the case of Ethereum, one of the key reasons for its meteoric price rise has been the Initial Coin Offer or ICOs. Cryptocurrency start-up companies resort to COs to raise fund development.
Other factors that affect the price of Ethereum include its features. Ethereum offers more features than Bitcoin which is acts as just a digital currency. The decentralized Ethereum platform has the ability to run smart contracts and enables people to build decentralized blockchain applications. This adds value to Ethereum.
The factors that affect the prices of Bitcoin and Ethereum are diverse. While some of the factors have a slow but steady impact, some others have a more violent and sentimental influence on prices. Speculative trading often contributes to price volatility in the market.