Cryptocurrency Valuation: What Drives the Price of Crypto

Why does the price of Bitcoin move 10% while the price of gold can stay steady on the same day? What gives Ethereum, Dogecoin, or Solana their value? In the world of crypto, price swings can seem chaotic, but behind the volatility is a mix of fundamental drivers that seasoned investors watch closely.

Understanding cryptocurrency valuation – what drives it and how to interpret market forces – can help you navigate crypto price highs and lows with greater knowledge and clarity.

In this article, we’ll break down what determines the price of cryptocurrency, what causes it to rise or fall, and who and what influences those movements. We’ll also look at how digital assets lose value, how macroeconomic factors play a role, and what UK investors should know to build a more informed crypto strategy.

A combination of utility, adoption rates, market liquidity, technology development, network effects, wider economic stability, regulation, and investor confidence dictate the price of cryptocurrencies.

Tokens like Ethereum derive consistent value from powering smart contracts and decentralised applications. Others, like Solana or chainlink, serve critical functions such as data oracles or scalable infrastructure.

Network activity, measured through wallet usage, transaction volume, and developer engagement, is a strong indicator of growing utility. High throughput and strong community ecosystems tend to attract long-term holders and institutional interest. These factors contribute to price stability and growth.

Such fundamentals often dictate whether a cryptocurrency becomes integrated into real-world solutions, ultimately influencing long-term price trajectory.

Investor sentiment, speculation, and macroeconomic influences are core drivers of crypto price changes. While fundamentals matter, emotions and narratives often move the market faster than logic.

Bullish cycles are usually driven by optimism around innovation, major crypto adoption, or, as the world witnessed after the second election of Donald Trump to the US presidency in November 2024, the widespread belief that he would drive broad crypto growth through support and deregulation.

Bearish trends have tended to follow regulatory crackdowns, large exchange hacks, or global market downturns. For instance, in 2022, the crypto market was already seeing prices decline, due to factors such as high inflation and decreasing investor confidence. Then the crash of the crypto exchange, FTX, became a major trigger in worsening it much further, in November of the same year.

These two examples, of the second election of Trump as US president and the FTX exchange collapse, show how sentiment tends to drive prices one way or the other. FOMO (Fear of Missing Out), FUD (Fear, Uncertainty, Doubt), and speculative hype can all drive volatility.

Celebrity endorsements, social media narratives, and macro news events frequently influence investor behaviour too. For instance, when Tesla invested $1.5 billion into Bitcoin, the cryptocurrency surged 17% in value. Similarly, bearish news such as exchange collapses or regulatory crackdowns can trigger sharp selloffs. The aforementioned FTX collapse caused Bitcoin to drop 22% in a single day.

Seasoned investors monitor sentiment indicators, such as the Crypto Fear & Greed Index, social media analytics, and funding rates, to time their crypto buys and sales armed with as much market insight as they can gather.

The regulatory landscape is a significant driver of value and investor confidence. In the UK, crypto firms must be registered to operate legally in the country and comply with the FCA’s anti-money laundering (AML) framework and counter-terrorist financing regulatory standards.

In Europe, the Markets in Crypto-Assets (MiCA) regulation aims to harmonise crypto rules across member states, improving clarity and investor protection. Meanwhile, jurisdictions like the US remain divided on how to classify certain tokens as securities or commodities. This creates market uncertainty.

Investors should stay informed about regulatory developments, as favourable regulation often coincides with market growth. Conversely, investors may view certain governments as being excessive with regulation, which can act as a drag on cryptoasset price.

Value is influenced by decentralised market activity. Buyers and sellers on global exchanges set prices based on demand, speculation, and utility.

That said, large holders, known as whales, and institutional investors can really impact short-term price swings. When institutions allocate large amounts of capital to Bitcoin or Ethereum, the two leading crypto assets, they often signal broader market confidence, driving prices up. Conversely, mass sell-offs by these big investors can trigger sharp declines.

Exchanges, crypto miners, protocol developers, and even regulators influence the crypto ecosystem, but no single person or organisation controls it outright. The value of crypto ultimately reflects collective market belief.

Institutional investment has become a major force in crypto. Companies like MicroStrategy and Tesla have allocated treasury funds to Bitcoin, whereas financial institutions including JP Morgan and Wells Fargo have invested in it. Meanwhile, asset managers are increasingly launching spot and futures-based ETFs, making it easier for investors to gain exposure without holding crypto directly.

This institutional activity tends to give cryptocurrency increased credibility, which can raise prices and even lead to greater price stability. Retail adoption is also rising. Platforms like PayPal and Revolut allow users to buy and hold crypto, while more household name brands are accepting cryptocurrency as payment, including Gucci.

Every new channel of access increases demand and helps mature the market. Higher adoption typically correlates with reduced volatility and increased price stability over time.

Bitcoin’s emergence as a “digital gold” narrative has become more prominent in times of economic uncertainty. Investors looking to hedge against inflation or diversify beyond fiat currencies are increasingly turning to crypto.

Periods of high inflation, loose monetary policy, or currency debasement can increase demand for fixed-supply assets like Bitcoin, which is capped at 21 million Bitcoins. Saying this, rising interest rates, tighter monetary policy, and broader market risk-off sentiment can have the opposite effect, especially as correlations with tech stocks have increased in recent years.

Understanding these macro forces is key for timing entries and exits, particularly during high-volatility market phases.

Falling demand, increased competition, regulatory pressure, or loss of community support. Technical flaws, exploit vulnerabilities, or declining utility can trigger price declines.

In many cases, price losses are exacerbated by overleveraged trading or cascading liquidations, especially in a volatile market. A lack of transparency from developers, unresolved bugs, or negative headlines can destroy investor trust. This is especially the case, as cryptocurrency is still a relatively new type of technology and asset class, not even 20 years in existence.

In addition, it has still not reached mainstream acceptance and the wider confidence that such a milestone typically provides, so the first sign of trouble is often enough to send prices tumbling.

For UK-based investors looking to gain exposure to cryptocurrencies, consider this five-step approach:

1. Define your investment goals

Are you investing for long-term store-of-value, or short-term growth?

2. Research thoroughly

Evaluate a cryptoasset’s use case, growth opportunity, the people behind it, and associated risks.

3. Diversify your holdings

Spread exposure across different sectors, including layer 1 cryptoassets, DeFi, infrastructure, and so forth.

4. Use an FCA-registered platforms

Optimise investment safety and security by choosing a crypto exchange that is registered with the Financial Conduct Authority.

5. Stay updated

Monitor regulatory developments, on-chain data, global economic indicators, and market sentiment.

Cryptocurrency price changes are rooted in utility, adoption, sentiment, and broader economic factors. For seasoned investors, the real opportunity lies in decoding these signals early in order to then position themselves strategically.

As crypto continues to evolve, informed investing becomes a competitive advantage. The more clearly you understand what drives price and what causes volatility, the more confidently you can navigate the digital asset space

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OANDA Crypto is part of the OANDA Group.