Cryptocurrency Price is Driven by Multiple Factors Including Supply and Demand

• When people become aware of a project or its benefits, demand rises.
• A growth in crypto adoption as an investment likewise raises demand.

As with any other product, the value of a cryptocurrency is determined by supply and demand. The price rises as demand outpace supply.  Each cryptocurrency project exposes its token minting and burning plans; thus, the supply mechanism is always known. Many of them, such as Bitcoin, have a defined maximum supply; we know that there will only be 21 million Bitcoins in existence at any one time. 

Others, like Ethereum, do not have a limit on the supply. The “burning” of old tokens is a method several cryptocurrencies use to keep the circulating supply from becoming too big and thereby curbing inflation. To burn a token, one transfers it to an address on the blockchain that cannot be recovered.

Unique Monetary Policy

Each cryptocurrency has a unique monetary policy. With each new block added to the blockchain, a predetermined quantity of Bitcoin is added to circulation. Each block of Ethereum has a predetermined reward, but it also pays for the inclusion of the new block, enhancing the blockchain’s functionality. 

Furthermore, these cryptocurrencies are listed on various exchanges, allowing investors to invest and trade them. That doesn’t mean a crypto project isn’t worth looking into simply because it isn’t listed on a top ten exchange, says David Gokhshtein, founder of Gokhshtein Media and creator of the Circle of Ninjas.

When people become aware of a project or its benefits, demand rises. A growth in crypto adoption as an investment likewise raises demand while effectively restricting the number of coins purchased. In early 2021, for example, institutional investors began purchasing and hoarding Bitcoin, driving up the price as demand outpaced the rate at which new coins were generated, reducing the overall amount of Bitcoin available for sale.

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