What Makes Crypto Prices Go Up?

What makes crypto prices go up?

Supply and demand, of course, but that’s not it. You could have an amazing, valuable project that people will pay for, but the prices just aren’t going up! Why?!

Time for a quick economics lesson in Austrian marginal utility!

WHAT IS MARGINAL UTILITY?

Apologies to my Austrian Econ friends in advance for this brutally simple description. 😅 Basically, things get priced based on the value of having more of that thing.

Water is super valuable, essential to human life. But, it’s plentiful, and buying more water than you need doesn’t make sense. Once you have enough to drink, wash, cook, etc., you get zero benefit from having more.

Internet access is extremely valuable, but it’s also plentiful in the developed world. And, for most people, having “some internet” is more than enough. Why pay more for two internet connections? Why pay more for bandwidth unless you’re a gamer etc.?

WHAT DOES THIS MEAN FOR CRYPTO?

Crypto is a good or service just like anything else, and conforms to the same economic laws. Before reading more (if you haven’t already), refer to this article which breaks down the token types, and what they’re used for:

https://inleo.io/@thedessertlinux/stop-hoarding-gas-tokens-crypto-investing-for-the-modern-age-8ga

For gas tokens, you only need as much as you need to actually power things. You’ll buy however much gas you need to power your apps and use cases, but not more. In order to cause a supply shock and drive up prices from purely gas token use cases, you’d need crazy usage!

For product tokens, once again, you only need as much as you need for the particular thing. You only need to buy as many monkey JPEGs as you want to have, and not a single one more. Only a supply shock, from a constricted supply or a bunch of people suddenly needing the product, would drive up the price.

Investment tokens are the one case where buying more of it actually does give you more value. This would be pretty linear, until you reach a point where the individual just has no more desire for money, which is a pretty high amount.

VOLUME IS KING!

The most straightforward way to guarantee that there’s as much demand for your crypto of choice as possible is to increase volume.

The more people use it, the more of it they’ll need to have on hand, the more exchanges will have to have in order to supply the market, and so on. This increases demand for more of the coin, and eventually you run into scarcity, and prices go up.

BEWARE OF SUBSTITUTE GOODS!

Now, don’t assume that you can make a scarce crypto, get people to want its use case, and prices will just go up. There could be substitute goods, or other cryptos that basically do the same thing.

After Bitcoin stopped being digital cash, every Bitcoin fork under the sun tried to claim its rejected use case. But because there were so many that did the same thing, you never saw that supply constriction, and usage flowed to many cheaper chains without driving up the price of any one significantly.

Ethereum made a critical mistake in assuming there wouldn’t be substitute goods for NFTs, DeFi, stablecoins, etc. Because of insufficient differentiation, people migrated to cheaper chains.

Bitcoin has a much longer rope than Ethereum because its investment use case has much less competition in the space. But if you see a scarce investment token capturing massive fee revenue from some killer use cases, that will materialize as a substitute good for Bitcoin, investors will flock to that for returns instead of continually driving up the price of Bitcoin.

This should solve 90% of the confusion surrounding why some coins pump and others don’t, outside of pure market speculation. Feel free to share with your confused friends.

Posted Using INLEO