Who sets the price of a cryptocurrency? Let's take Bitcoin Cash for example...
How much is a Bitcoin Cash today?
According to whom?
If you visit different indexes at the same time, you will be offered different BCH prices. Why is that? These indexing services do not dictate or determine the values of a cryptocurrency, they just aggregate the prices from different exchanges and offer you the average price at that same moment. Prices from different indexes may differ if they use a different set of exchanges to look up the price of a cryptocurrency.
Today, I wondered who sets the price of bitcoin cash, of cryptocurrencies in general. Is there a particular person who said, "1 BCH is equal to $1,000"? Or is there an entity, or organization that declares the price of it at the end of every moment? Maybe it's from a computer program that generates its value per minute. Can I declare 1 BCH is equal to a hundred grand, can I?
I am not an economist nor did I study any financial courses that will help me pretend to know what the whole market is all about. I only imagine that just like the other fiat currencies, there are factors that are considered in determining the price values of a cryptocurrency.
In simple words, the price value of a cryptocurrency will be affected by its usability. What good will a coin be if you can't use it anywhere? Imagine that you have a 100 BCH, but there is no BCH or BTC blockchain to accommodate your transactions. If that is the case you just have a hundred coins without real value because you can't use them, there is just no way to use them so might as well throw them away. On the other hand, if the blockchain or the platform where the coin is usable is reliable, fast, secure, and its reach is wide, I think that the fair price of that crypto just got a lot higher.
This factor may also be connected to the first one. Imagine that your BCH can be used anywhere. You can use it to shop in leading department stores, you can use it to pay for transportation, you can use it to pay for services and utilities, then I imagine that BCH price value will soar even higher. The more merchants acknowledge and accept a cryptocurrency, the more the price will be affected. And I think that it can only go higher.
This is just my personal opinion and I think that mass adoption of BCH is just around the corner, so yes, I think that the price of it will even go higher and who knows? Once it does, it may even exceed and post a new All-time high (ATH).
I think that the price value of a cryptocurrency will also be affected by the demand for it. Just like in basic economics, the higher the demand for a commodity is, the higher its price will be.
And today, as more and more people jump into the crypto bandwagon, the higher the price of each will be.
Scarcity of the Crypto
In the BCH case, the total supply there is the same as BTC, it is exactly 21 Million coins. As of the time of writing this, the current BCH supply in circulation is 18,719,702.
The scarcity of the crypto is tied tightly to its finite number, in this case, 21 Million. As the adoption rate of BCH grows day by day the demand for it will also grow and of course, the available supply to be grabbed will dramatically decrease and then the price will then go up. Until all the supply of BCH has been exhausted, the price will be unpredictable.
Traders also have a huge impact on the rising and falling of cryptocurrency prices. Let us just use BCH as a reference, logically if a significantly large amount of bitcoin cash is moved the effect will ripple through the whole market and will affect its price. If a significantly large amount of BCH is sold, or as the pros would like to call it," dumped", the price will be expected to go down. And vice versa, if a significant sum of BCH is bought, the price of the BCH will go high as it was "pumped".
Traders holding large sums of any cryptocurrency are often referred to as whales. These whales can sway the market in just a moment because of the crypto's fluidity. At any given time, a whale can sell a huge portion of its holdings and drive the market price so low and then buy a huge amount of the crypto that will drive the market price higher than before. If done at the right timing, that whale's portion of the cryptocurrency will grow even higher.
I believe that experienced traders know how to look out for these whales when making a buy or sell order.
Just look at the image from above. This was taken from Binance's trades page. As you make an order to buy or sell your asset, the system will show you other orders by other holders that are placed into the system. For a trained eye, this information may be useful in predicting whether the price will go high or it will go down because if a whale uses this exchange his orders will also show up on the queue. Depending on what he's going to do, you can take that into consideration and make your own play with your asset.
I used to think that cryptocurrencies are independent of the physical world. I thought that their price values are unaffected by whatever happened on the outside. But lately, I believed that big news and events affect the price of cryptocurrencies. In the Philippines for example, XRP or Ripple still has a pending issue with the SEC and therefore the price is anchored in its average.
Recently, DOGEcoin was also affected by a physical event. Dubbed as "DOGEFather", Elon Musk hosted SNL and the meme-based coin was mentioned in it. His mom mentioned that she was excited about his mother's day present by hoped that it was not JUST a dogecoin.
I think that the negative comment about the coin triggered the stockholders to sell off their assets, thus driving the coin's price down.
So in the end, I cannot just declare the price value of bitcoin cash, I am so sorry about that. Just like the physical stock market, the price of a crypto asset is determined in consideration of several factors and aspects of their nature. There is no single entity that dictates the price value, sure there may be entities that could sway the value of an asset, but that's just that, they can't still dictate a specific price. If a disagreement persists, a fork may result from it, which is not an entirely bad thing.
Image 2 : https://en.bitcoinwiki.org/wiki/Whales