What Determines the Price of a Cryptocurrency?

May 19, 2025

Crypto

What Determines the Price of a Cryptocurrency?

By Oyinkansola Odunsi

It could be frustrating if you checked your crypto wallet early in the morning only to find out it has dropped by almost 20% overnight. As sad as this sounds, it is a true depiction of how unpredictable cryptocurrencies could be. And unless you’re a seasoned trader with charts all over your screen, trying to make sense of the situation can feel overwhelming.

Thankfully, you do not have to wonder anymore, as I will be discussing what determines the price of a cryptocurrency. Make sure you follow closely to get the clarity you are looking for. Now, let’s get right into the conversation.

KEY TAKEAWAYS:

Cryptocurrency prices, like anything else that can be bought or sold, are largely driven by supply and demand.

A positive sentiment around a crypto can drive its price up significantly.

When a crypto has real, practical use, you can expect an organic demand for it.

When you understand the key drivers of a crypto’s price, you are in a better position to make smarter, more confident choices.

Table of Contents

7 Factors that Affect Crypto Price Movements

While the crypto market can feel like it has no rules, the truth is that the value of a cryptocurrency is affected by a mix of many factors. Below is an overview of the major ones.

Supply and Demand

Cryptocurrency prices, like anything else that can be bought or sold, are largely driven by supply and demand. So, if there is a high demand with limited supply, the price goes up. Similarly, a low demand when there is too much supply leads to lower prices.

Take Bitcoin, for example. It has a capped supply of 21 million coins, so there will never be more of it. As more people want it and fewer coins are available, the price naturally increases. Now imagine a coin with an unlimited supply and not enough people buying it. You can predict that its price will come crashing down in no time.

Market Sentiment and Social Media Hype

Have you ever bought a token or coin just because everyone on Twitter or Reddit was hyping it up? Don’t worry, we’ve all been there. This is the power of market sentiment. People don’t always act on logic. They act on emotions like fear, greed, hype, and panic, especially in crypto.

If there’s optimism around a project (say, a major partnership or a celebrity endorsement), more people buy in, which drives the price up. On the flip side, if there’s FUD (fear, uncertainty, and doubt), like rumors of regulations or security issues, prices can tank even if nothing technical has changed.

Utility and Use Case

Utility refers to how useful a coin actually is. For example, Ethereum powers smart contracts and decentralized apps, which has made it more valuable. When a crypto has real, practical use, it creates organic demand. And when demand rises, so does price. Compare that to meme coins with no clear function. They might get short bursts of hype, but their long-term value often depends on their actual usefulness.

Adoption and Community Support

You’ve probably heard the phrase: “community is everything in crypto.” And honestly? It’s true. If no one uses or talks about a coin, it’s probably not going to grow. But if a coin gains traction, especially with developers, users, or businesses, it gets more attention and more value.

Investor Speculation and Whale Activity

A lot of people buy coins hoping the price will go up fast. This is not investing based on fundamentals. It is a speculative behavior that can cause wild swings in price.

Also, there are the whales who are individuals or institutions holding massive amounts of crypto. When they make big trades, they can move the market. A single whale selling off can trigger panic. Similarly, a whale buying en masse can cause fear of missing out (FOMO).

Government Regulation

Crypto still lives in a regulatory grey area in many parts of the world. That uncertainty makes prices very sensitive to government announcements. For instance, if a country bans crypto, its price can drop. Also, its price can spike if a country adopts it. This situation boils down to legal confidence. If investors feel that crypto is under threat, it can negatively affect its price.

Tokenomics and Supply Mechanics

Every coin has its own set of rules, called tokenomics, that control how it’s issued, distributed, and used. For example, coins like BNB have a burn mechanism, which reduces supply over time. This kind of tokenomics creates scarcity, which can drive prices up.

Conclusion

The crypto world is exciting, unpredictable, and full of potential. But it’s also risky. Prices move for many reasons, some logical, some emotional, some global. Now that you understand the key drivers of a crypto’s price, you are in a better position to make smarter, more confident choices.

So the next time you check your crypto wallet and see it in the red or green, you’ll know that behind those movements are real reasons. You no longer have to guess because you have moved from a curious beginner to a confident crypto user.