Bitcoin, Ether, and More: What Drives Cryptocurrency Prices Up

Tyler Hromadka
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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 – on potential occasions for sudden price explosions or slumps on the volatile There is no shortage of the crypto market. But what determines the development of the courses in the long term? 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 crypto currencies such as Bitcoin, Ethereum / Ether or Ripple’s XRP.

Study: 19 value drivers for cryptocurrencies

In the report, the authors have Philipp Rosenbach, investment banking analyst at Alantra, and Robert Richter, research associate 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.

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The value of Bitcoin, for example, is mainly determined by its stock-to -Flow ration is determined, i.e. the ratio of the total amount available to the newly added amount. According to the authors, Bitcoin is how gold should be valued due to the scarcity inherent in the system. The halving dates – i.e. the Bitcoin halving, as reported by the Frankfurter Allgemeine Zeitung (FAZ) – are considered impulses. 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 start.

Bitcoin price influences crypto rates

However, due to the low market liquidity, the authors were only able to examine two halvings – 2016 and 2020. There was an increase in prices, with delays in each case. Other factors had a less noticeable impact, such as the number of active Bitcoin users. The authors – somewhat surprisingly – do not want to have recognized any influence of social media. 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, in turn, has a significant influence on the prices of the other crypto currencies, the so-called Altcoins. Unlike Bitcoin, the value of the second largest crypto currency 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, according to Cointelegraph, the prices of Ethereum challengers with their own blockchain such as Polkadot, Neo or EOS are based more on the Ether course than on their own network activities.

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