For the past decade, cryptocurrency has been rapidly rising into being an incredibly valuable asset, so much so that several cryptocurrency investors save up their cryptocurrencies for retirement or as a form of inheritance to their heirs. Flowing from that, one thing that plays a role in the market cap and value of cryptocurrencies is its exchange rates. Some of such cryptocurrencies that have become extremely valuable due to their exchange rates are bitcoin and ethereum. This value is glaring in the bitcoin price and the ethereum price which are $5,067.69 and $163.73 respectively.
In line with the above, if you have ever found yourself pondering on the possibility of trading cryptocurrencies and the factors that determine the exchange rates of the numerous cryptocurrencies we currently have in our planet, then you might want to read on. Right here we would be giving an insight into factors that determine cryptocurrency exchange rates.
Determinants Of Cryptocurrency Exchange Rates.
For those who are wondering how cryptocurrencies which only exist digitally can have so much importance to the point of pulling in millions of dollars globally through diverse exchanges, the reason is quite simple and it is hidden in plain sight. The principles of economics are the primary determinants of these exchange rates. These principles are scarcity, demand, supply and utility. This goes to say that if a commodity or service is rare and very useful, its demand would hit the roof and it would be supplied at a high price. Take a precious stone such as diamond as an example. It is undisputedly rare, the mining and cutting process is tasking and it is the strongest precious stone to be discovered so far. Due to its scarcity and usefulness in that it can be transformed into jewelries, its demand is high among those who can afford it and it goes at a high price. This is exactly the way cryptocurrencies and their exchange rates operate.
Connecting the above diamond example to bitcoin, the oldest and highest lucrative cryptocurrency, there currently exist a little over sixteen million bitcoins and the miners have made it quite clear that the highest amount of bitcoins that would exist per time is 21 million. This perfectly illustrates the economic principle of scarcity and utility. Such scarcity increases its demand and right now bitcoin price is over five thousand dollars with an overall market cap of $89.4 billion. Bitcoin is so useful to the point that there are loads of merchants around the world that accept Bitcoin as payment for their goods or services.
These same principles of economics are the reason behind ethereum market cap being $17.3 billion, ripple market cap being $13.6 billion, bitcoin dash price being $281.35 and its market cap being an impressive $5 billion and some other cryptocurrencies having impressive exchange rates and thriving. Be that as it may, you should also note that some types of cryptocurrency exchanges slightly alter some of these cryptocurrency prices and exchange rates. It all depends on which cryptocurrency exchange platform you engage.
Types Of Cryptocurrency Exchanges.
To start with, cryptocurrency exchanges are web-based platforms that permit the exchange of fiat money for cryptocurrencies or another form of cryptocurrencies. There are four cryptocurrency exchanges and these Â cryptocurrency exchange, brokers, direct trading and cryptocurrency funds.
For the first, it is very similar to a stock exchange format in that cryptocurrency investors trade based on the rate in the market at a time. The exchange usually acts as an intermediary and the exchange also charges a certain amount for every transaction. Having said that, Kraken and GDAX are reliable traditional exchanges.
For the second one, it is an exchange that operates on a website and buyers trade in cryptocurrencies using a price dictated by a broker. It is very much similar to an airport currency exchange. Additionally, a broker does not provide for transactions between both the seller and the buyer but rather this is done between the broker of the cryptocurrency and the broker or the seller and the broker.
Thirdly direct trading platforms offers trading opportunities for buyers and sellers. On this platform, sellers fix their exchange rates when it comes to cryptocurrencies and buyers check the rates and the exchange takes place. Alternatively, buyers can state the exchange rate they want and the exchange platform would look for sellers offering the same rate.
Finally, cryptocurrency funds are basically a collection of cryptocurrency assets that have been expertly managed. Interested members of the public are then to acquire and handle cryptocurrencies via the fund. When that’s done, buyers can go on to invest and trade such cryptocurrencies without going through the hassle of storing it directly. A good cryptocurrency fund is GBTC.
On a final note, there are currently over 1,600 cryptocurrencies and the exchange rates for each of these cryptocurrencies are primarily determined by the principles of utility, scarcity, demand and supply as seen above. Individual exchange platforms also play a role in determining these exchange rates. That said, when choosing an exchange, you should do an in-depth research into the platform. Also make sure you are transacting with certified users and check prices because you won’t be trading at a designated price.
Source: Foundico.com: Blog