Factors affecting the price of cryptocurrencies

Factors affecting the price of cryptocurrencies

There are many factors that can affect the price of coins electronic money short term. In this analysis, we will explore two fundamental factors that drive long-term prices: the reliability of cryptocurrencies and the adoption of the blockchain. Bitcoin, Ethereum, and Monero are coins electronic money they are influenced by these foundations.

Determining the determinants of asset prices is one of the most important issues in finance. Traditional asset pricing theories are based on the idea that stock prices should be determined by fundamentals such as earnings (Gordon 1959, Campbell & Shiller 1988). Ultimately, however, stock prices appear to follow their fundamentals (Pa’stor and Veronesi, 2003, 2006, Bartram and Grinblatt 2018).

Price action

In the case of cryptocurrencies, academia has remained largely unchanged in determining the determinants of their prices. For example, the study by Cheah and Fry (2015) and Corbet et al. (2018) states that Bitcoin has no intrinsic value and that its price has consistently exhibited bubble-like behavior. Makarov and Schoar (2018) find that the prices of Bitcoin, Ethereum and Ripple vary between exchanges for weeks. Outside of academia, the president of the United States recently tweeted it electronic money based on “air” and very fragile.

The importance of computing power and the network for the price electronic money is visible. On the supply side, the computing power provided by the geographically diverse miners powering the blockchain is incentivized to do so as they are rewarded with units. electronic money that exploit.

High levels of computing power allow transactions to flow efficiently, protecting the blockchain from phishing attacks electronic money and therefore increase the reliability of the blockchain. On the demand side, consumers like it electronic money as it offers uncensored, borderless and secure transactions. It will likely accept a larger network of users electronic money greater as a medium of exchange and greater liquidity. In general, the computing power and the network are directly related to the price electronic money.

What is computing power?

Hashing or hashing is the process of taking an input string of any length and turning it into cryptographically fixed output. The hash is not an encryption, we cannot recover the original data by decrypting the hash, it only has a one-way encryption function.

Did you know that we can store all data available on the internet in a fixed string length with the help of hashing algorithms. They use a mathematical algorithm called SHA-256 (Secure Hashing Algorithm). -256 bits). SHA 256 is the successor of SHA-1 which has 160 bits.

How is hashing used in Blockchain?

In the blockchain, each block has a hash of the previous block. When we change any data in the current block, the hash of the block will be changed, which will affect the previous block because it has the address of the previous block.

Example: if we only have two blocks, one will be the current block and one will be the parent block. The current block will have the address of the parent block. If you need to change the data in the current block, you need to change the parent block as well. It would have been easy to change the data when there were only two blocks, but now when we get into the reality of the blockchain, there are 614272 blocks that have been mined and the hash of the 614272th block is: 000000000000000000007a6be31011560f1e3abe8f125e356a31db6051753334e.

If you want to change the data in the current block i.e. block 614272, you need to change the hash address of 614271, but you can’t change the hash of blocks 614271, so this is how blockchain is called immutable and reliable of data.

Hashes are the core and most important foundations of the immutable and deterministic potential of blockchain technology. Preserves the authenticity of the recorded and displayed data and, as such, guarantees the integrity of a blockchain. Miners hash rate electronic money It is also a factor that determines the computing power of the network.

Understanding hashing is a solid step towards understanding how blockchain works and the immense potential and value it has.

Cryptocurrency price ratio

Back to price analysis electronic money. Based on data from a well-known blockchain research firm, Coinmetrics.io, we can explore the relationship between prices electronic money, computing power (measured by the hash function) and network (measured by the number of active users). This result focuses on five categories electronic money main miner (e.g. Bitcoin, Ethereum, Monero, Litecoin and Dash) and has a data extension that includes 33 more electronic money. The follow-up period lasted from 7 August 2015 to 25 January 2019.

For example, in Figure 1, we see a closely related map of the price of electronic money Bitcoin and Ethereum with their respective computing power values. Furthermore, in Figure 2, we see an even more robust map of Bitcoin and Ethereum prices with their respective network values.

Interestingly, these charts also show that when the price electronic money significantly beyond the trend in computing power or the network (as it did at the end of 2017), the price will eventually fall and follow the underlying trend. Price convergence with trends with fundamentals suggests that fundamentals are the ultimate long-term determinant of price.

Note: This number represents the weekly average of the price electronic money Bitcoin and Ethereum daily transactions and hashrate log between August 2015 and January 2019.

Another analysis

We have a more graphic proof with an official estimate that takes into account the price electronic money, computing power and network are endogenous variables collectively determined at equilibrium. Therefore, graphic evidence can show a strong positive relationship between the price of a cryptocurrency and the aforementioned factors. Estimates show that, on average, the prices of five coins – Bitcoin, Ethereum, Monero, Litecoin, and Dash – depend on their computing power and network.

Also, when you extend this factorial analysis to a set of 33 out-of-sample types electronic money obtained from the Bittrex exchange. We also see that synergies and network factors also determine price in this large, out-of-sample dataset.

To conclude

Overall, the long-term price of the five types electronic money The main miningables depend on their computing power (i.e. hashrate) and the network (i.e. the number of users). Second, the risk factors associated with the aggregate values ​​of computing power and the aggregate network can price the returns of a set of categories. electronic money wide. This result shows that the prices of various types electronic money long-term growth is reflected in practice because they are based on fundamentals. There could be other important factors, such as cryptocurrency oversight regulations and political risk, which could also become important as the market continues to grow. electronic money expire. Even so, our study is also a tip to better understand the factors that determine the price of electronic money.learn two factors that drive prices electronic money in the long run: the credibility of cryptocurrencies and the adoption of the blockchain in practice.
learn two factors that drive prices electronic money in the long run: the credibility of cryptocurrencies and the adoption of the blockchain in practice.
learn two factors that drive prices electronic money in the long run: the credibility of cryptocurrencies and the adoption of the blockchain in practice.