Reasons for the growth of the cryptocurrency
Let`s look to the reasons for the growth of the cryptocurrency rate:
- the range of users of the functionality provided by the token is expanding;
- there is a speculative pumping of prices with the blowing of a bubble doomed to burst
When a new token is launched on the market, the price for it is set arbitrarily at the request of the party that initiates the issue of the coin. The currently generally accepted way to announce to the world the existence of a new cryptocurrency (token, coin, cryptocurrency are synonyms in this context) is to conduct an ICO (Initial Coin Offering).
The initiator, by issuing the token, gives it some meaning. Someone needs a token for some reason and to some extent – the initiator approves and, according to his own understanding of the use of the token, assigns its initial price. Prices are valid until the end of the ICO period or until the token appears on exchanges. After that, the market mechanism of supply and demand turns on, and the price of the new cryptocurrency falls into a stormy stream of decisions of the players of the cryptocurrency market.
Also see : Where Does Cryptocurrency Value Come From
Initial Coin Offering
The economic model of the project, of which the token is a part, largely determines the fate of the coin. Depending on the functionality put into the coin, it can act as a certificate for any right – to receive income, own property, receive goods or services, and also be a symbol of gratitude to the project for the funding received, without any obligations from the project.
If at the design stage of the token it is possible to put enough meanings into it, and during the ICO it is possible to reach out to people and explain how and why the token can be used, then perhaps people will start using the coin, there will be demand for it and the bitcoin price will go up. The growing cryptocurrency price will be noticed by speculators who do not care about the functionality of the token, but are pleased with the opportunity to ride a rising new star, and they, buying up coins on the exchange, will push the rate even higher.
The growth of the cryptocurrency rate attracts the attention of many different people to it – some are only interested in profitability, others are pleased with the growth of the rate in addition to the possibilities of using the coin. The circle of token holders is growing, and with it the level of support from which speculators are included in the game rises.
Users and speculators
The number of users, in addition to those who directly use the token for the purpose laid down in it by the creators, can also be attributed to long-term investors, for whom the benefit consists, for example, in the ability of the token to maintain and increase the value.
In this context, speculators are the players who move through the minefield of the crypto economy by jumping from currency to currency and are ready to jump off the train at the first signal of danger. Jump from one to jump onto the other and raise some more kilo-bucks. The market, what to take from it – each has its own role in the general movement in time.
Users and speculators are two factors that affect the price of a cryptocurrency. The volatility of the exchange rate and the level of impenetrable support depend on their ratio. The greater the share of the circulation of coins in the hands of users, the lower the risks of breakdown in a panic peak, the smoother the growth curve and the more adequate the response to possible failures in the implementation of the project that launched the coin into the market.
With the growth of capitalization due to the expansion of the circle of users of a particular cryptocurrency and, possibly, the scope of its application, according to the model under consideration, the level of volatility will decrease, the interest of speculators will fall in proportion to the cost of exchange rate manipulation costs, and this will signal the transition of this particular cryptocurrency to a period of maturity.
From an investor’s point of view, the transition of a currency to a mature state means its death as a highly profitable investment instrument. But do not worry – the boring times in the economy seem to be over, and it is still far from the complete tokenization of everything in the world. Time is enough to make more than one fortune.