Factors Influencing the ETH Price

By MARY ANN CALLAHAN
Like most popular digital currencies, the factors that affect the price of Ethereum are numerous and often challenging to predict. These factors tend to be volatile and even mysterious at times. This should not come as a surprise.
Cryptocurrencies are still considered a new asset class. Unlike with fiat currencies and other well-established asset classes, economists still do not understand all of the nuances involved with cryptocurrencies. There is still a lot that is not understood about the real value accredited to digital currencies as well. Until this changes, the best we can do right now is making informed guesses by viewing the data/statistics/numbers and identifying trends.
We also have to consider governmental regulations and how these regulations might influence prices. Other occurrences, such as when a major financial institution adopts Ethereum, will also affect the price of ETH. Market manipulation, cybercrime, scandals, etc. will also have the potential to cause price fluctuations. As you can see, predicting the price of a digital asset is no easy task. Here, we will go over some of the most important factors that influence the price of ETH.
Recent Trends
When the popularity of Ethereum exploded and Ethereum found itself the world’s second most popular cryptocurrency on the market, the price of ETH went from $10 to nearly $1,400, seemingly overnight. In January 2018, the price reached an impressive peak, but has since struggled to stay above $300. Cryptocurrency is an exciting market that is often quite volatile. The rapid and drastic fluctuations can be intimidating, yet exhilarating. But what leads to these ups and downs?
One thing to consider is mining profitability. Speculative actions and mining profitability are the two most important things that determine the price of ETH. Miners have an incentive to sell their coins at a better price when the profitability is high, and the mining profitability is quite high when the ETH price is between $300-400. The nature of mining, however, complicates matters.
When it is profitable, more people will want to start mining coins, and ultimately this will lower the profitability. If there is a large number of people mining, they will start to sell at lower prices, or they will hold on to them and wait to sell until the prices become more favorable. Oftentimes, there is a lot of pressure to sell, which complicates things further. The bottom line is that the very nature of mining makes it hard to predict prices and it also lends itself to price fluctuations.
Regulations
First, China took a huge stand against cryptocurrencies. Then, South Korea also started threatening with regulations. This led to a significant decline in the investment inflow earlier this year. One of the benefits of the cryptocurrency market is that it does not have all of the limitations and regulations that the fiat market has. So, whenever a major economic power throws the word ‘regulation’ around, it is going to negatively affect crypto prices across the board. Especially since many cryptocurrency transactions are cross-border transactions.
The usual scenario is that when a country increases regulations, crypto companies based in that country have to move their operations to a different state that has a more favorable view on cryptocurrencies. This is a hassle and will still cause investors to pause, even if the pause is just temporary. In contrast, when a country takes an action that clearly shows an intention of embracing the cryptocurrency market, this can have a positive effect on the ETH prices.
Cryptocurrency Exchanges
Because the cryptocurrency exchanges are all relatively new, they do not have all the necessary infrastructure to handle the rapid growth of cryptocurrencies like Ethereum. Some exchanges have even stopped taking on new accounts while they improve their support options. Exchanges have suffered other obstacles like security breaches and software updates that take a lot longer than they thought they would.
All of these issues can influence prices. When customers and investors are worried about the exchange they normally use or are frustrated with them, this changes their spending and investing habits. While most of these issues will work themselves out over time. Presently, the lack of a secure and predictable trading environment is going to lead to price fluctuations in the short term.
Adoption
This affects prices in a positive way. When more people adopt the technology, prices go up, especially when there is a large influx of new users. So when a major corporation adopts Ethereum or it suddenly gains popularity in a specific industry, the price will increase. The main reason is that an influx of new users inherently increases the demand for the coins. At the same time, it also stabilizes the market and lessens some of the volatility, which makes Ethereum more attractive to potential investors.
Potential
A lot of people who use Ethereum do so because they are looking at the future potential of Ethereum. Ethereum is a platform that has applications valuable to a wide variety of people. FinTech companies are rapidly incorporating smart contracts, blockchain, and automation into their day-to-day operations, and Ethereum is one of the cryptocurrencies most suited for automation and smart contracts. There are so many different companies popping up that utilize smart contracts that the demand for Ethereum is inevitably going to continue to climb for quite some time.
Competition
Competition is another thing to consider. Seemingly, thousands of new cryptocurrencies hit the market every month. Many of these fail to have a lasting impact. But when a new currency comes out that does manage to have some staying power, this can influence prices if the cryptocurrency shares some of its utility with Ethereum.
Ultimately, supply and demand determine the price. But there are many factors that can influence the supply and demand. Some, like government regulation, tend to affect prices negatively. Others, like a new application, will increase prices. But since the ecosystem of the crypto market is still in its early stages, the list of potential factors is long and diverse and many of the factors are unknown. While the price of ETH is hard to predict, the infrastructure of the crypto market will improve and stabilize over time. Eventually, prices will become easier to evaluate.