What drives the prices of cryptocurrencies
A study examined 25 of the most important cryptocurrencies to determine what drives their prices. Bitcoin, for example, should be valued like gold due to its increasing scarcity.
China here, Elon Musk there – there is no shortage of potential occasions for sudden price explosions or slumps in the volatile crypto market. But what determines the long-term development of the courses? Why could the price of a Bitcoin rise to $ 60,000. And why was the crypto market worth $ 2.5 trillion at times? A study by the German fund company Iconic Funds and the Cryptology Asset Group has now investigated the question of the value drivers of 25 important cryptocurrencies such as Bitcoin, Ethereum / Ether or Ripple’s XRP.
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Study: 19 value drivers for cryptocurrencies
In the report The authors Philipp Rosenbach, investment banking analyst at Alantra, and Robert Richter, research assistant at the Frankfurt School Blockchain Center, identified a total of 19 value drivers for digital currencies. These can be grouped into five clusters: financial factors, development activity, social media mention, network usage, network size, and maturity. In summary, it can be said that the value drivers of cryptocurrencies differ according to how a blockchain is used and how it is structured.
The value of Bitcoin, for example, is primarily determined by its stock-to-flow ration, i.e. the ratio of the total amount available to the amount that is newly added. According to the authors, Bitcoin is how gold should be valued because of the scarcity inherent in the system. The halving dates – i.e. the Bitcoin halving, such as the Frankfurter Allgemeine Zeitung (FAZ) – are considered impulses. reported. Then the reward for mining new coins drops by half. Bitcoin production is made more difficult, and the maximum number of Bitcoins is limited from the outset.
Bitcoin price affects crypto rates
However, due to the low market liquidity, the authors were only able to examine two halvings – 2016 and 2020. A price increase was recorded there, with delays in each case. Other factors had a less noticeable impact, such as the number of active Bitcoin users. Somewhat surprisingly, the authors do not want to have recognized any influence of social media either. In the case of Litecoin and Monero, on the other hand, Github and social media were perceived as drivers. According to the study, the development of the Bitcoin price has a significant influence on the prices of the other crypto currencies, the so-called Altcoins.
Unlike Bitcoin, the value of the second largest cryptocurrency Ethereum / Ether is largely based on the number of verified smart contracts. This is not about scarcity, but about building an open network on which as many applications as possible should run, as the FAZ writes. Interestingly, the prices of Ethereum challengers with their own blockchain such as Polkadot, Neo or EOS are based according to Cointelegraph more on the Ether course than on your own network activities.
