Answer: Prices are formed by different factors which are explained below.
These are the biggest factors in determining the cryptocurrency price:
- The market cap of the cryptocurrency
- Exchange surges
- The trading volume
- Influence of third parties (Especially cryptocurrency with a small market cap)
- Transaction costs
- The gap between bid and ask
What is a market cap of a cryptocurrency?
The market cap is the estimated value of the total worth of a cryptocurrency. A simple example is that if Bitcoin is worth €2 and there are 1,000 Bitcoins available the market cap will be €2,000.
If someone now wants to sell 500 Bitcoins, the market will crash. This because half the market wants to sell.
Because a cryptocurrency can be traded every second, the price can change as well every second. This is called fluctuating the price. Due to the fluctuation of the price, prices at LiteBit can change every second.
What is the trading volume of a cryptocurrency?
The amount for which the last period (week or day) has been traded with a cryptocurrency. Let's take Bitcoin for example. Within the last 24 hours, there can be an X amount of Bitcoin be bought and sold. The accumulated value of these transactions (X) is the trading volume. If the trading volume is big, the price will change quickly and the prices at LiteBit as well.
Influence of third parties
Persons or groups owning a lot of money can manipulate the market. When a lot of money is invested in a cryptocurrency, the value of the cryptocurrency will rise quickly. When these investor(s) create this kind of price increase, the price at LiteBit will rise as well.
Transaction costs of cryptocurrency
For every transaction at the blockchain, a fee will be charged. A fee is a small compensation for the transaction made. The fee you need to pay for a specific transaction depends on the cryptocurrency.
Gap between bid and ask
The difference between the bid and ask is related to the price a buyer is offering and the price that the seller is asking for a specific cryptocurrency. Let's take bitcoin as an example. In the example below, Bitcoin has the price of €1.
The buyers want to pay a maximum of €0.90 for a Bitcoin. The Bitcoin sellers want a minimum price of €1.10 for a Bitcoin. If the buyers and the sellers continue to adhere to the price, there will be no transaction. If any buyer really wants to buy a Bitcoin and pays €1,10 there will be a transaction.
LiteBit charges a fee of approximately 2% per transaction. So, when the price of the example above is maintained buying Bitcoin at LiteBit will be as follows:
The price when you buy a Bitcoin:
Ask price + 2% LiteBit fee=
€1.10 + €0.022= €1.12
The price when you sell a Bitcoin
Bid price - 2% LiteBit fee=
€0.90 - €0.018= €0.88
As you can see in this example, the margin of LiteBit is only a part of the total difference.