So you’ve got into a cryptocurrency finally. Let’s use an example here: Binance Coin ($BNB). Just so you know, Binance is a crypto exchange (a platform making buying and selling of coins possible. As far as I know, it’s the biggest cryptocurrency exchange in the world. (Using Binance only as an example. I’m not invested in it. I wish I was. Especially when I’d seen it at $4 or even $40 more recently).
It’s currently trading at $246 and is the 4th biggest coin by size. So what influences or what will influence the price of a coin? Here are five things that matter (there’s many, but I think these are crucial)
What does the project, the coin which you purchased, do? What is its purpose? How innovative is it in what it’s doing? How easily can that business be replicated.
Think of Binance. It’s now established itself as probably the biggest exchange in the world. It’s got loads of currencies to trade on. Yes, for sure there are many exchanges, regional and international. But building a scale of the nature Binance has is going to be extremely challenging for any of those.
So. The utility of your coin is a big big differentiator. It can drive value or completely erode value. I spoke about QUANT network in another post and why I like it. It’s working on something called interoperability – that’s the utility there. Zilliqa – where Sharding is one utility. NANO – where free and quick transactions is a utility.
The more unique the utility of the project you’re in, there more value it can generate. But the uniqueness ought to have value too, in the sense that there’s a problem it seeks to solve. A solution to which can benefit many.
2. Scarcity and general market dynamics
Did I scare you away with that? Hold on. Think of a property in say New York.
What makes an apartment or a house in NY so expensive?
- High Demand
- Limited Supply
When demand is greater than supply? Or more people are looking to buy apartments compared to what’s available, prices for apartments go up? Remember what happened with toilet paper at the beginning of the pandemic?
So ya. More the demand for a project, more the keenness to buy the coin. That drives up price.
Tip: A limited supply for a coin can often be a trigger point for driving demand.
Day to day value, ups and downs, are derived from supply and demand dynamics in the market.
Going back to Binance. Recently, it spiked up from a level of $44 on 1st February 2021 to $349 on 19th February 2021. Yes, 19 days for a 700% rise. Why? Following the saga around the GameStop price movement, there was a rush in investors wanting to join the cryptocurrencies trading. And who benefits the most from such a demand? Binance, cause of scale and size.
3. Hype, community, following
Saw what happened with the cryptocurrency Dogecoin recently?
See the spike in price in January? It jumped nearly 10 times in a day. Why? Because of this,
Musk’s followers recognized this as an endorsement to Dogecoin.
That’s hype. Hype can be a “razor’s edge to thread”. So there are negatives and positives to it. But for a project, it is essential to an extent. How do you check that?
- Check the social following of the project
- See if influencers are talking about it
A cool tip I follow: Search for your project on Twitter. So I’ll search for may be $ORAI on Twitter, and see the Top and Latest tweets to get a sense of hype around it. Community plays a big role in crypto.
You can have the coin to the best of projects. But if it’s not seen, chances are the fundamentals (or amazing stuff about it) will get lost in the crypto world. Price will not follow those fundamentals.
Binance is lead by a guy called Changpeng Zao. Got a million followers on Twitter. Very active with the community. So is Binance per se, as an account. 1.9 million followers. Active posts. This matters.
4. A positive market sentiment
General market sentiment influences price of individual coins big time. When the sentiment is bullish (optimistic), most of the coins will rise. When it’s bearish (pessimistic), most of the coins will fall. So how do you figure out sentiment:
- Track Bitcoin (I spoke about this is another post. Have a read here). Look at it as a kind of benchmark. I made a reference to Bitcoin as the Sun in the universe in that post.
- Keep a general tab on current affairs in this space. Check out the page dedicated to Bitcoin on say CNBC. Check the screenshot below of CNBC today (What does it reflect? It’s screaming optimism)
5. Upcoming events, projects, launches, developments
Keep a watch on something called a roadmap for your project. If I don’t find one on the website for the coin I have, that’s a bit of a red flag for me. I’m keen to see developments in the future. Here’s some examples,
Binance: https://www.binance.org/en/blog/binance-smart-chain-2021-roadmap-vision-and-trends/ (this is one for a project of theirs called Binance Smart Chain)
Generally project launches, developments influence price in a positive way (at least as long as you’re in a good project). Keep a tab on what’s happening within the coin you hold and see what are the trigger points in the coming weeks or months that can drive prices up
That’s it for now. Do feel free to share this in case you felt it made sense and was useful. Would appreciate that big time