What Makes Crypto Go Up: Key Drivers Behind Its Value

If you're interested in cryptocurrency investing, one of the most important things to know is why crypto goes up. Understanding the reasons for changes in crypto prices can help you predict future market movements. This guide will explore crypto pricing patterns and help you learn how to determine when cryptocurrency values are about to increase.

Key Takeaways:

• Crypto is a type of digital currency that can be bought and sold online. 

• Some of the factors that could increase crypto prices include utility, supply and demand, tokenomics, liquidity, governance, exchange accessibility, and market demand and adoption.

What Is Crypto?

Crypto is a type of digital currency. It's bought and sold online, and all records of peer-to-peer (P2P) transactions are stored in an unalterable blockchain ledger. Cryptocurrency value is determined entirely by market demand, so a crypto token's value can drastically change in moments.

What Makes Crypto Go Up?

Ultimately, crypto's value is based solely on how much people are willing to pay. There are many different factors that can affect public willingness to buy a coin. Here are some of the most common reasons that cryptocurrency values might change.

Utility

Some of the most popular digital currencies are utility tokens, whose holders get to perform certain actions. Since utility tokens have a purpose outside of investing or making transactions, they tend to retain inherent value outside of other market factors. A utility token is often given to a cryptocurrency’s initial investors, with its price increasing if the project proves to be successful.

Supply and Demand

According to the traditional economic theory of supply and demand, crypto prices will naturally try to reach an equilibrium whereby the number of buyers demanding crypto is equal to the number of sellers supplying it. In reality, however, there’s often an imbalance. When there’s less crypto being supplied than people demand, prices increase as buyers compete to purchase the limited amount of crypto available.

Production Expense

The production expense of crypto is usually measured based on the cost of buying and running equipment to mine cryptocurrency. When computer chip and electrical rates are high, it's pricier to obtain computing power, so production expenses rise. A higher production expense will increase crypto prices because people who mine cryptocurrency have to sell their crypto for higher prices to offset their added cost.

Tokenomics

If a project ends up flooding the market with a massive supply of coins as a result of its tokenomics, crypto prices can drop. Meanwhile, a blockchain network that ensures only limited numbers of coins are released at a time can help to maintain a cryptocurrency’s value. Factors such as a low maximum supply or token burning rules can mean a cryptocurrency gains value.

Liquidity

A theoretical cryptocurrency gain means nothing if there aren’t enough digital assets available for cryptocurrency exchanges to fulfill crypto transactions. Illiquid markets can also lead to price slippage, volatility and other issues. The reliability of a crypto market reassures buyers and encourages them to purchase more crypto. Therefore, the assurance of liquidity indirectly leads to higher cryptocurrency values.

Competition

In the overcrowded cryptocurrency market, competition has a tremendous impact on cryptocurrency values. If investors leave one crypto to focus on others, its price may begin to fall. However, competition can also lead to increases in price. Often, a cryptocurrency gains value when its project’s team is able to do something that demonstrates their token’s superiority. The constant drive to innovate and beat other cryptocurrencies can lead to both fascinating blockchain technology and high crypto prices.

Governance

Usually, crypto prices are higher when a coin has reliable governance directed from a stable, clearly defined group. Governance by a decentralized autonomous organization (DAO) can work well, but only in communities whose members with governance tokens are dedicated to their crypto’s success. For example, consider this 2016 Ethereum DAO hack, in which token holders voted to address the situation and increase Ether’s price.

Technical Analysis

In modern times, many cryptocurrency traders rely on software that can perform technical analyses of the market and identify pricing trends. Though these tools are useful in some cases, they can lead to unexpected market movements. When thousands of traders around the world are relying on technical analysis, random market patterns such as a shift in total market capitalization or a change to maximum supply can suddenly encourage multiple parties to purchase crypto at the same time, which can lead to sudden increases in cryptocurrency values.

Exchange Accessibility

Whether or not a crypto is on multiple changes can impact its value. Unlike fiat currencies, cryptos aren't automatically accepted in every market. Instead, crypto can only be traded with ease if it's listed on popular cryptocurrency exchanges. Therefore, cryptocurrency values greatly depend on the exchange system. If a cryptocurrency is listed on multiple exchanges, it's accessible to a bigger market. This increases demand and leads to higher prices for the crypto.

Legal Frameworks

Cryptocurrency value tends to move up and down based on government regulations. When new laws and regulations are announced that will promote crypto trade and reduce crypto taxes, there’s higher demand and prices start to rise. For example, when the Securities and Exchange Commission (SEC) approved more Bitcoin and Ethereum ETFs to launch in the market, crypto crypto prices increased.

Market Demand and Adoption

In addition to looking at the cryptocurrency market, it's also helpful to look at the market as a whole. When other markets begin to adopt cryptocurrencies, demand increases, total market capitalization rises and prices soar. Therefore, mainstream adoption is one of the best indicators of a cryptocurrency value increase. When there’s a highly publicized change, such as PayPal adding Bitcoin to its list of approved payments, cryptocurrency tokens tend to soar in value.

Popularity in Media

Popularity is a huge driving factor in cryptocurrency value. When more people are interested in a token, the increasing demand causes the cryptocurrency’s value to rise. Many meme coins, such as Dogecoin and Shiba Inu, have prices that rely almost entirely on popularity on X (formerly Twitter), Reddit and other forms of social media. Thus, online articles or news segments highlighting blockchain technology can easily raise cryptocurrency values.

Market Cap to TVL

This DeFi metric compares the market cap of a cryptocurrency with its total value locked (TVL). TVL refers to the total value of assets staked, lent or deposited in a DeFi protocol. A higher market cap compared to TVL can suggest increased investor interest or confidence in the cryptocurrency, but this is not a direct indicator of value increase. While a significant difference between market cap and TVL might reflect investor optimism, it doesn't always correlate directly with the cryptocurrency's value appreciation. The assumption that users are depositing more funds, indicating a dedicated base of committed investors, is too simplistic and ignores other factors influencing market cap and TVL dynamics. Additionally, while a high market cap to TVL ratio can sometimes suggest that digital currencies are overpriced, it is not a definitive indicator of overvaluation and should be considered alongside other market metrics.

Can Users Increase a Crypto’s Value?

With so many different ways to increase a cryptocurrency’s value, it's no surprise that the market is vulnerable to user influence. There are many things that the average crypto enthusiast can do to help the values of digital currencies rise.

• Staking cryptocurrency: Temporarily locking crypto to keep it from being sold is a great way to decrease supply and improve a cryptocurrency’s value.

• Mining: Mining on chains such as Bitcoin increases value by making it harder for future miners to access tokens. Every mined token increases the amount of computing power required for further tokens, so it helps make each individual token more desirable.

• Participating in DAOs: Since a cryptocurrency’s value is heavily affected by its community's decisions, it's a good idea to get governance tokens and participate in DAOs for cryptos you care about. You can vote for choices that will ensure demand increases and value improves.

• Voting in local elections: Don't forget about the impact of laws and SEC regulations on cryptocurrencies’ values. Try to choose politicians who have expressed an interest in policies that help the cryptocurrency market and reduce crypto taxes.

• Promoting the coin online: There's a higher demand for cryptos when people frequently see them being discussed online. You might experience more of a gain for a specific cryptocurrency if you can mobilize its community to promote the coin.

How Does Cryptocurrency Generate Profit?

For most investors, cryptocurrency gains are all about buying at a lower market price and selling at a higher market price. This is a simple and effective way to generate a profit from digital currency. However, it's not the only option. There are some other strategies you can use to generate a profit from crypto.

Some people like to mine a cryptocurrency or stake it in order to earn rewards from the token’s blockchain network. There are also a variety of options and futures contracts on the crypto market that let you speculate on crypto without actually purchasing it. Another way to make a profit is via advanced investment advice options, such as arbitrage, to take advantage of small differences in price on multiple exchanges. Don't forget about peer-to-peer transactions, either. A variety of web3 projects allow people to lend their crypto to others so they can earn interest or trade crypto for other valuable items.

Does a Recession Affect Cryptocurrency?

There are numerous ways to improve a cryptocurrency’s value, but keep in mind that crypto depends upon a variety of market factors all working together. If something goes wrong, cryptocurrency value can start dropping. During a typical recession, cryptocurrency value is unlikely to increase.

Because people are struggling with their budgets at such times, they're more likely to exit the investment market. This reduction in trading volume leads to lower prices, as does people selling off their crypto. Even investors who don't have to liquidate their assets will still generally invest less because the risky environment makes them more cautious.

Because cryptocurrency value isn't any more "recession-proof" than that of fiat currencies or stocks, traders need to exercise a reasonable amount of caution. Instead of putting all your money into a few risky cryptos, keep your portfolio diverse and only buy digital assets with money you don't need for daily survival.

The Bottom Line

Overall, the price of a cryptocurrency depends upon how many people want to buy it. Everything from Bitcoin blockchain trends to government regulations can end up influencing buyers. If you're interested in profiting from cryptocurrency transactions, make sure you take the time to carefully analyze the market and determine whether cryptocurrency value is likely to increase or decrease in the near future.

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