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Like with all goods and services, the price of cryptocurrencies is determined by the law of supply and demand.
Demand is the market’s interest in buying the asset, while supply is the quantity available for buying.
The demand depends on the crypto’s utility and the value users see in it.
For example, a coin that can be used everywhere to buy anything from coffee to real estate would be more valuable than a coin with limited adoption.
To shape a coin's adoption, a set of rules and incentives defining how the blockchain works and evolves over time are created. That's called "Tokenomics".
Tokenomics rules define the supply of cryptocurrencies.
For example, Bitcoin has a finite supply cap of 21 million, while Ethereum coins can be created indefinitely.
How the market perceives the news and developments surrounding a particular coin is another crucial factor for pricing mechanics.
Furthermore, altcoins’ prices are highly dependent on that of Bitcoin.
A cryptocurrency’s price and inherent value can often differ. When the price is below the true value, the coin is “oversold” (supply > demand).
When it is above the actual value, the coin is “overbought” (supply < demand).
Hint: The price is lower than the coin’s inherent value.