With cryptos reaching new all-time highs on a regular basis (we’re looking at you, Bitcoin), it’s only logical that people get curious as to where these values come from. Although Bitcoin (BTC) may have the majority of the headlines, there’s a rising star that we all need to turn our attention to Ethereum (ETH).
At the time of writing, Ethereum’s price is just above the 1,700 USD mark, and we thought it might be worth looking into what turns the gears behind the scenes.
Factors that determine the price of cryptos
Before we get into the ETH factors and why the Ethereum value is where it’s at, let’s first go over the factors that affect the price of cryptocurrencies in general.
Supply and demand
Let’s start with an easy one. The law of supply and demand is a longstanding economic theory that explains the relationship between buyers and sellers of a resource.
To put it simply, if the supply for a crypto is low and the demand is high, prices may go up. If the roles were reversed and the demand is low and the supply is high, the price may go down.
Rules and regulations
Authorities worldwide view cryptocurrency differently, and their perspective on the matter may affect its prices. If these perspectives are somewhat restrictive, the price may fall. However, it also works on the opposite side of the spectrum. If authorities take a positive outlook, they could be a strong catalyst for a price rise.
Cryptocurrencies like Bitcoin (BTC) have the potential to be great stores of value for a struggling economy. If an economy begins to collapse, people may flock to other assets in hopes of preserving their wealth. This means that the strength of economies worldwide can play a significant role in determining the price of a cryptocurrency.
The media is a powerful tool that can either help or harm cryptocurrencies. In a way, they can control the moods of investors. If the press paints a flattering portrait of cryptocurrency, it could bring in new investors. On the other end, a negative portrayal of a cryptocurrency could scare away even a mentally-tough investor.
Media can also affect the price in terms of education. By providing opinion-free knowledge about a cryptocurrency, it could sway a trader in either direction. One more thing to note is that when Bitcoin price is trending up, the price of other cryptos is often affected positively.
With all that said, you may be asking yourself: “Why is Ethereum going up now?”
The fact of the matter is that Ethereum is like no other crypto. Because it’s a user-supported product built on a ledger system, everyone can see the full history of transactions, creating continuous transparency. As networks and supporters grow, new price-changing factors begin to appear.
If you need a refresher on what an Ethereum hard fork is, it’s basically an update that brings new technical features to a specific blockchain. This update splits the new blockchain from the old one, essentially creating an entirely new cryptocurrency.
Every person who lends their processing power to any network has to agree to follow 100% of its protocol for everything to work properly. As the collective grows, people may tend to disagree on how to manage the network. As a result, individuals may refuse to update their systems and stay on the old blockchain. Although many of the old protocol users may fade away over time, hard forks have the potential to bring volatility. Let’s say there’s an update that allows miners to charge more to process blocks. That kind of update may bring inflation and, eventually, a dip in price.
With Ethereum possibly going through another hard fork soon to trade the Proof of Work system for a shiny, new, Proof of Stake system, users may have to wait and see how it performs for a clearer picture of ETH’s future.
Like all other cryptocurrencies, Ethereum isn’t tied to any central bank. This means that price fluctuations can be influenced by trader speculation.
Additionally, trader speculation brings upon new factors. For example, since there’s no cap on ETH’s supply, people may have to take the risk of inflation and user interest into account as well.
However, since Ether is directly tied to Ethereum’s platform, its usefulness is ensured. It allows people to use unique features like decentralized applications and smart contracts.
Ethereum forecast: 2021
We get it, these factors can get a little complex at times, and perhaps we haven’t even named them all. There may be other factors that we missed. However, these are some of the most visible factors and, therefore, can’t be ignored.
As for where the future of Ethereum and where the price goes from here, we’ll just have to wait and see.
*Disclaimer: The content of this article is for informational purposes only. The opinions expressed here are not meant to be taken as financial, investment, or any other advice, nor do they express the opinion of Paxful.