The Truth About What Determines Crypto Prices (10 Factors)

Why do you invest in crypto? Cryptocurrency investors have all sorts of different reasons why they interact with the space. Maybe you value “decentralization”, maybe you dislike fiat currency and censorship. Whatever your reason is, most crypto investors would prefer to leave with more money than they came in with. Understanding crypto prices is vital for making your love for crypto a profitable experience.

Crypto prices are affected by almost an infinite amount of factors interacting with each other simultaneously. Let’s shine a light on these factors.

Best Crypto Prices For Investing

Volatility is what makes crypto investing so rewarding (and risky). However, there are so many variables that it often feels unpredictable. Even weeks after a rally or flash crash happened, most people still don’t understand what caused it.

And if you don’t, they will again catch you unprepared next time.

The good news is that you don’t need to know where prices move at all times. It’s all about when, how, and where you trade. As for the types of crypto prices:

• Long-term price trends are the most reliable and predictable. Short-term prices are riskier, and while they may favor you sometimes, they eventually re-align with long-term prices.
• Platform prices change with liquidity. Centralized exchanges (CEXs) tend to have the most accurate prices while decentralized ones (DEXs) don’t. Unless you trade on Uniswap and such, small DEXs might have over 10% in price differences (which you could take advantage of by arbitrage trading).

The most reliable crypto price trackers are decentralized oracles, like Tellor. That’s because they compile prices from many different exchanges to find which one is the most common and accurate. You can use them right now by watching price feeds like these.

For the top 10 factors, we’ll assume that we’re looking at medium/long-term prices on oracles and large exchanges.

Top 10 Factors That Affect Crypto Prices

These factors will help you anticipate crypto prices both for coins like Bitcoin and altcoins like Uniswap v3 That doesn’t mean these can explain every single movement. Crypto prices are complex: sometimes it’s factor no.2. Sometimes it’s five of them at once.

These are the ten most influential in no particular order.

#1 Token Supply and Demand

The most influential factors often are the most universal and simple. When more people want to buy, prices go up. When fewer coins are in circulation, prices go up. Supply and demand tend to balance each other.

Demand tends to rise because crypto adoption is just starting (there are somewhere between 300M and 1B crypto users).

As for token supply, it’s important that the blockchain is immutable, trustless, and autonomous. Otherwise, founders can create tokens out of thin air anytime. It neither helps the price to start with too much supply: ideally, circulating and max supply should be close.

Protocols use different methods to reduce existing supply, such as:

• Token burning: To send crypto to an inaccessible wallet address.
• Halving: To reduce validator block rewards by 50% after a certain block number.
• Classic Staking: To secure a proof-of-stake (PoS) network by locking tokens for a long time in exchange for interest rewards.

Proof-of-work (PoW) coins like Bitcoin are the most affected by production costs. That’s why prices rise after increasing electricity costs, node number, or hash difficulty.

Note: PoW is a consensus model and reward competition based on computing power. PoS models select block winners based on token quantity, locking length, and randomness. Consensus models determine security, decentralization, and network efficiency (see blockchain trilemma).

#2 The Global Economy

Decentralization may give the impression that cryptocurrencies are protected from global events. The past shows that’s not the case. Both financial and political effects had an immediate impact on mid-term crypto prices (such as Covid-19 or the start of the Russo-Ukrainian War).

You could say that cryptocurrencies are even more vulnerable than fiat currencies on black swan events. That’s because investors can get away with stable currencies like the Swiss Franc, Japanese Yen, or Norwegian Krone. You can’t do that in crypto, because it involves multiple countries, and almost every altcoin is correlated with Bitcoin or Ethereum.

Fortunately, crypto prices recover faster than fiat currencies do. Hence why these “bad” events are the best entry opportunities more often than not.

#3 Cryptocurrency Accessibility

For those who’ve used crypto for years, it’s easy to overestimate how many people access it. Maybe 1B people have ever bought crypto by the end of 2022, but how many of them are active users who keep long-term positions in the market? Adoption isn’t as high as you may think, and making these more available will benefit crypto prices and liquidity.

That doesn’t mean that coins should go up just by getting more people. But there should be enough on and off-ramps to seamlessly exchange fiat for crypto. That’s why news like these create short and long-term price increases:

• Payment processors accepting crypto payments
• Payment companies distributing Bitcoin ATMs, crypto cards, and such
• Exchanges offering flexible deposit and withdrawal options
• Local stores recognizing Bitcoin for purchases
• Sending crypto to anyone with KYC-free wallets

Restricting accessibility won’t drop prices, but it will slow down their growth. Those who already use crypto won’t be as affected as new adopters. For example, several countries banned cryptocurrencies, yet millions of citizens still use them.

#4 Infrastructure Updates

Blue-chip cryptocurrencies don’t change as much because their price is linked to utility. Due to the blockchain trilemma, secure and decentralized networks don’t scale well. That means that higher prices will increase network costs and slow down transactions, which reduces demand and again lowers crypto prices.

It’s not that they’re not valuable enough, but that they can’t sustain higher prices yet. If ETH went from $1,000 to $10,000, it would lose value from its large ecosystem, as no one wants to suddenly pay 10 times more fees. Infrastructure updates reduce transaction time and costs, so the network can manage more people and higher token prices.

For example, Ethereum first crossed $600 to over $2,000 after adding PoS on the Beacon Chain update in December 2020. What do you think will happen after The Merge?

#5 Media Announcements

Media announcements are easy to confuse with infrastructure updates. That’s because they go together and amplify each other. The difference is that media announcements are short-term and speculative.

The most common reaction is to “buy the rumor and sell the news.” In the Merge example, traders accumulated ETH for weeks. On the update day, most of them sell because there’s nothing else that justifies another price surge. Like clockwork, Ethereum plunged in September 2013 (but not for long).

Media announcements can be:

• Promotions (e.g., Crypto.com buying a stadium)
• Incidents (e.g., Binance cyber attack)
• Team announcements (e.g., Cardano’s roadmap)

You can tell the difference between updates because none of these affect the project features or performance. If Binance users lose $10M in phishing attacks, that has nothing to do with BNB coin or the BSC Chain. If Cardano publishes the roadmap stages, that doesn’t guarantee they will deliver on those promises (or not without years of delays).

Media pumps crypto prices before the events. Updates create lasting price increases after.

#6 Inflation Of Fiat Currencies

While fiat and cryptocurrencies are related, they’re not directly proportional. The inflation of fiat currencies moves up crypto prices. And if people lost confidence in national currencies, it may speed up the adoption and surge of cryptocurrencies.

Similar to no.2, fiat currencies can put crypto prices at risk. So far, the most popular crypto-fiat pairs are dollar-based. That’s because USD is the world’s reserve currency, which benefits the US with the most liquidity, money-printing, and borrowing ability.

But things have changed abruptly in 2022. We’re facing the financial consequences of 2020 along with previous incidents. The US deals with over $28T in public debt, near-zero interest rates, and over 8% inflation (versus the 1% inflation rate of 2020).

When interest rates fall to zero, the simplest solution to debt is to print money. And if new dollars are poorly allocated, inflation devalues the currency, which affects cryptocurrencies.

If a coin is a store-of-value like Bitcoin, it might be perceived like gold and reach new all-time highs. Otherwise, it will depreciate like everything else.

#7 The Heart’s Law

Just like fiat currencies can affect cryptocurrencies, one token can affect another. It’s not necessarily because they’re in the same ecosystem or they’re correlated. According to Richard Heart, it’s because they’re bonded by liquidity (AKA the Heart’s Law).

Liquidity speeds up crypto adoption (see no.3), as it’s the amount of instantly tradeable tokens.

The fact that you can directly exchange two tokens makes both prices move together. Similar to reserve currencies, a cryptocurrency becomes more valuable when it has more token pairs across different platforms. Bitcoin has hundreds of altcoins and fiat pairs, so its price tends to go up long-term.

Similarly, PulseChain is the first Ethereum fork that inherits the full system state. Unlike other networks, all Ethereum tokens and NFTs are directly tradeable in PulseChain pairs. So there are enough reasons to expect higher crypto prices.

#8 Revenue Generation

Closely tied to supply (see no.1), revenue can affect security, efficiency, and therefore prices. For example, Bitcoin generates a steady $20M per day across 1M mining nodes (note that miners may own several). Revenue was already this high around 2018, which explains why now there are more validators. Thus, Bitcoin is more decentralized and secure, so more users are confident in holding it.

Revenue also helps protocol and dApp token prices. A DeFi platform can use the revenue to give back to users with increased APY rewards. That attracts users and improves decentralization. Or they can invest it in features that improve the utility, which eventually increases prices.

Platform revenue shouldn’t be confused with investor returns. High-yield platforms can still make no revenue when rewards exceed the fees received from services. If interest rewards come from inflation or later “investors,” the coin’s price won’t hold.

#9 Bitcoin Correlation Lag

Most crypto prices are correlated with Bitcoin’s, but they don’t move together at the same time. When market trends change, investors tend to trade the largest coins first. These blue-chip projects have high volume and stability, so they’re safer in case the trend reverts. Assuming the trend continues, they take profits from these cryptocurrencies and reinvest in others that haven’t pumped yet. This could be any token on CoinMarketCap’s Top 50.

Micro-cap coins have lower trading volume, so after Bitcoin’s lag, they’ll mirror the same price trajectory but amplified. If Bitcoin surges by 10%, these might go up by 100%. This is rewarding and dangerous because Bitcoin falling by 30% is enough for small coins to lose 90% or liquidate altogether.

The smaller the volume, the bigger the lag, usually between 1 and 3 weeks IF the trend maintains. If Bitcoin’s direction reverts before other micro caps update, the lag will cancel and keep prices the same. However, if a token is closely linked to the coin’s ecosystem (e.g., TraderJoe on Avalanche), prices can mirror immediately.

#10 Crypto Price Manipulation

Lastly, we cannot ignore the price manipulation reality. Even though blockchains might be decentralized, crypto markets aren’t. Trading can be a zero-sum game where others’ best interests are to confuse and make you lose money (at least in prediction markets like futures and options). And as you invest larger amounts, emotions are more involved and likely to cause mistakes.

Manipulation examples include:

• Pump and dump groups to sell high worthless coins
• Using media news to rationalize potential pumps
• Trading with oneself to fabricate fake volume (wash trades)
• Creating bull and bear traps to trigger stop losses and short squeezes before the actual rally (or crash)

Not only is it about knowing what affects crypto prices but how others affect it. If many people are confident that Bitcoin will reach a specific price, it might be safer to trade a thousand dollars lower in case it reverts. 

5 Reasons Crypto Prices Change

The previous ten factors are external variables that can redirect crypto prices. But crypto prices can also influence themselves because traders will change their positions depending on market direction. So assuming the ten factors don’t intervene, crypto prices will still change.

Imagine a coin like Ethereum goes up ten times due to demand and speculation. What will happen is:

#1 Network Costs Increase

Network fees use the native currency (ETH), so they scale whenever the coin goes up. If it’s $0.01 to $0.10 per transaction, there’s no problem. If the average is above $10, a 10X price increase would turn them into $100.

Inefficient fees will paralyze as soon as prices go up. Users won’t want to pay those fees, so they’ll stop using the network until prices go down. The most vulnerable coins to price drops are low-scalability blockchains with large ecosystems.

#2 Trading Volume Cycles

If Bitcoin or Ethereum goes up in price for months without crashing, eventually all crypto projects would imitate it. As investors get confident, they will look into low-volume tokens with long-term potential. Tiny projects can go up by 10 to 100X within weeks, which is far more attractive than ROIs the Top 10 coins.

Bitcoin’s trader demand is dispersed into smaller projects with a few weeks of lag. It goes to Top 50 coins, ecosystem coins, metaverse tokens, NFTs, and ends with meme coins. Profitable meme coins typically indicate the cycle end, followed by Bitcoin’s crash and everyone reinvesting into blue-chip cryptos.

#3 Overall Market Direction

The market situation changes the investor and price behavior.

For example, the goal of a bear market is to buy the bottom and avoid losing money. Selling pressure is high, so any price surge will likely lead to a big sale, not parabolic growth. It’s common to sell when it goes up and wait when it goes down.

The “goal” of bull markets is to be the first to profit. Because if you’re late, you’ll be unprepared for the approaching bear market. On long-term bulls, selling is replaced with holding, and it seems buying anything anytime is a good deal. But is it?

#4 Profit Taking and Reinvesting

Do you ever feel like prices move the opposite way where you planned? Your predictions aren’t necessarily wrong. It’s that there are bigger, early investors who can profit with smaller price changes.

If others take profits first, they might trigger others’ stop-loss orders and leave you in the red overnight. If you’re thinking of buying a coin that increasing, it’s not whether it will keep going up or not.

It’s about how many may have bought before you and are ready to exit.

#5 Volume and Network Congestion

Volatile prices are likely to attract high-frequency traders and overload the network. As bigger investors join the market, smaller transactions lose priority. You have to pay extra fees to add priority if you don’t want orders to delay for hours.

Congestion and network fees are correlated, and they both slow down crypto prices. 

How To Profit At Any Crypto Price

While you wait for the right price to buy, so are countless other traders. It’s easy to predict (and manipulate) when everyone waits to buy low and sell high. But there are ways to profit regardless of the price direction.

You can profit when prices go down by using futures, options, and short positions. For example, if you believe the Merge will cause Ethereum to crash, you open an ETH short and take profits when it does. And it did.

If it’s a boring sideways market, it’s the perfect time to use DeFi tools. Because the highest yield farming percentages happen when token pairs don’t change. It’s your opportunity to accumulate without buying by staking and lending.

When you can profit anywhere, you’re always ready for the best crypto prices. You’ll make enough profits to exit before a bearish reversal, and you’ll have enough to buy the bottom.

FAQ

Can Crypto Prices Go To Zero?

Crypto prices don’t go to zero because they’re worthless, but because of security problems. It might be a blockchain with a faulty consensus mechanism, not enough validators, or unbalanced token allocation. Even after crypto audits, cyber attackers sometimes find code bugs for infinite-money glitches.

Do your research to avoid these incidents, or at least diversify enough.

Will Crypto Prices Keep Going Up?

Crypto prices keep going up long-term because of their intrinsic value. A few decades from now, many tokens may not exist, and the leading ones we know may be replaced. But cryptocurrencies aren’t going away: even 100 years from now, society will still likely use some kind of blockchain system.

If you hold cryptocurrencies with great adoption like Ethereum, their prices will inevitably go up.

Should I Compare Crypto Prices With the Market Cap?

Crypto prices multiplied by token supply equals the market cap. Contrary to popular belief, it has nothing to do with company size or price predictions. Developers might change token supply to whatever number they wish, and if supply doesn’t change, watching the price history offers the same information.

Can You Profit From Crypto Prices By Never Selling?

Not only you can, but you should. DeFi services allow you to extract value while holding tokens on networks/protocols. You can stake, lend, or yield-farm to profit without ever selling your initial amount.

This way, users help their coins with liquidity and stable floor prices. So if you ever want to sell, it will likely be higher than your entry price. Plus all rewards earned in the process.

Should I Try to Predict Crypto Prices?

You should predict crypto prices based on your trading style. If your strategy is long-term holding, you have to predict/analyze what coin has the most utility/value/price potential. For high-frequency trading, predicting is technical and news analysis. In futures and options, predicting is betting and taking asymmetrical risks (either lose small or win big).

You can’t predict all crypto prices all the time. So you should choose a strategy that favors your probability. Dollar-cost averaging, holding, and value investing are some of the most time-tested and recommended.