Investment in cryptocurrencies has become a major trend worldwide, as it ensures security, anonymity, and probable capital gains. But a lot of us (including myself as of two days ago), lack adequate knowledge with respect to market value, and as to what extent various variables have on the pricing of these currencies. Take for example, a snapshot below from coinmarketcap.com:
For a novice, at first glance, the only thing that stands out is the market price of the Steem currency. For the most part, we are ignorant to other variables such as the 24H Volume, Market Capitalization (Market Cap), Circulating Supply, and the Total Supply, and as to what extent each go in determining the market price of the currency.
24H VOLUME : The volume of a cryptocurrency refers to the amount of its coins that has been traded (bought an sold), in the last 24 hours. This reflects and compares how many people are buying and selling the coin. The volume of a currency is related to a price increase or reduction of such currency. An increase in volume shows a lot of people are making transactions on the currency, and if it continues as such the price would likely increase gradually. However, a drop in the price, would reflect as only a small amount of people are presently engaged in the transacting the currency. Thus, from the movement in the volume of a coin, one can be able to develop an opinion of the market.
MARKET CAP : From the snapshot above, it is seen that the rank of Steem is currently 28 among other cryptocurrencies. The Market Capitalization is a way in which the performance of a cryptocurrency is ranked. It is the aggregate valuation of a cryptocurrency based on its current market price and the total number of circulating supply. It is calculated by multiplying the market price of a cryptocurrency with the current circulating supply.
CIRCULATING SUPPLY : This is a closely estimated number of coins that are circulating in the market and are currently been held by people.
TOTAL SUPPLY : This is the total value of a cryptocurrency supply available in the market at a specific time.
MARKET PRICE : The price of various cryptocurrencies are determined by taking the volume weighted average of all prices reported at the particular coin's market, which can be found in the market page of the cryptocurrency.
Other internal factors that may cause a positive fluctuation in the price of a cryptocurrency includes, but not limited to the following:
- Software Upgrade : Software upgrades improves the quality of the network, especially the time it takes to carry out transactions, as well as the security in the storage of the coins. Software upgrade takes place across all cryptocurrencies and can highly influence the price of a digital currency. It would be necessary and beneficial to keep a lookout for such changes and their implications. Especially now on Steemit, with all the talk about Hardfork 20.
- Platform Applications/Tokens : From what I understand, this refers to how a platform like Steem hosts other applications which may or may not have their own currencies or tokens. Although the price of such decentralize applications are independent of the value of the host platform, if one of such decentralized applications does well, it might go a long way to influence the price of the host cryptocurrency. It is important to be watchful on such promising applications, just as in the case of Steem introducing Smart Media Tokens (SMTs) in the near future.
- Demand/Supply : The demand and supply, to a great extent, affects the price of a cryptocurrency in accordance to laws of economics. A high demand, which can be reflected in the 24H volume and market capitalization, with a lower supply of the cryptocurrency can lead to an increase in its price. Whereas, a large volume and reducing market capitalization, with a high supply would reflect a low demand for such cryptocurrency, which may cause a reduction in its price.
CONCLUSION
Basic understanding of a few of the factors that determine the value of a cryptocurrency will not necessarily make it more predictable. However, understanding them can help you to be more knowledgeable about what can affect your investment, and thus, will help you make more informed decisions at the right time.