Today, there are over 19,000 cryptocurrencies worldwide and many different blockchain-based projects in development. This means there are more opportunities for investors to find success in the crypto world than ever before. If you’re interested in investing in this rapidly growing digital industry, it’s essential to have a good understanding of what factors can impact the crypto market and the price of your token. Here are a few factors to consider when selecting a cryptocurrency to invest in and other factors to consider when speculating on a token’s long-term success.
The public opinion of a cryptocurrency can be a massive factor, particularly in its short-term success. Public opinion can cause a quick influx of investors or massive liquidation at any moment as public speculation impacts investors’ actions. The Dogecoin price is an excellent example of a cryptocurrency that has been dramatically affected by the opinion of its users and the popular media. As more or fewer users believed in the coin’s success at any moment, massive price fluctuations can be mapped throughout this turbulent time. Though the currency is still in circulation today, it proves the volatility of public opinion over cryptocurrencies.
The number of coins in circulation determines the market cap of a cryptocurrency at any given time. Crypto, like fiat money, is susceptible to supply and demand impacts. However, unlike fiat money, crypto can be designed with specific deflationary regulations, such as the ability to ‘burn’ specific amounts of coin regularly to maintain the price for users. Further, many cryptos will limit the number of coins that can ever be minted, which creates further scarcity and limits the minting rate to help regulate the price.
Each cryptocurrency is designed with specific rules and benefits created to incentivize its use in the market. The design of these built-in mechanisms is called tokenomics. You can clearly understand the goals and motivations behind the creation of each token through its whitepaper. The whitepaper is also an excellent resource for predicting the long-term success of a cryptocurrency or blockchain because you can gain insight into the long-term goals of the coin.
Non-fungible tokens or NFTs are another great indicator of the long-term sustainability of a blockchain or specific cryptocurrency. NFTs must be stored on blockchains and cannot be copied to other blockchain networks. Therefore, the long-term success of NFTs depends on the success of the blockchain they are minted on. The Ethereum blockchain holds most of the NFTs in the world today, and because of this has, thousands and thousands of users investing and exchanging constantly. The Ethereum blockchain, safe to speculate, would be super difficult to take down with this many active users.
Also, read the blog – What Banking Services Are Exclusive to Online Banking?
Cost of Production
The cost of minting new coins on the blockchain is another factor that can impact the value of a coin at any given moment. Cryptocurrencies housed on proof-of-work blockchains such as Bitcoin or Ethereum require high computing power and machinery to verify transactions and maintain the network. This means the more users competing to mint coins, the less efficient the entire system becomes. With proof-of-stake blockchain networks, on the other hand, users do not require complex machines to verify transactions. Users with personal computers are instead randomly selected to verify transactions in exchange for staking their coins as collateral. Proof-of-stake networks are much more sustainable and require less work to mine new coins and verify transactions.
These are just a few considerations when speculating in the crypto world. You can join an online crypto community like FTX to learn more about cryptocurrencies and how the market works. Start your investing journey today and find the best crypto for you.