What drives the price of cryptocurrencies?

The price of cryptocurrencies like Bitcoin and Ether is driven by multiple factors, including supply and demand, competition, public speculation, and government regulations. Just like other financial assets, cryptocurrencies can be valued as overbought or oversold, but you must track a different set of factors than traditional economic assets if you want to successfully understand cryptos.

Let’s look at each major price factor in more detail.

• Supply and demand
• Cost of production
• Availability
• Competition
• Governance
• Regulations
• Public sentiment
• Price drivers in the 2020-21 Bitcoin rally

Supply and demand

Supply and demand are some of the strongest price factors when trading cryptocurrencies. Like other assets, cryptocurrency prices are driven higher when demand outweighs supply, and prices drop when supply overtakes demand.

Supply

Let’s look at how supply functions for popular cryptocurrencies. Both Bitcoin and Ether release coins as a reward for mining – a process in which computers verify blockchain transactions and are awarded cryptocurrency in return.

Bitcoin’s supply is capped at 21 million coins. According to Bleap Financial, as of October 2025, approximately 19.93 million Bitcoins are in circulation, leaving just over 1 million yet to be mined. The amount of Bitcoin released through mining is reduced every four years in an event known as halving. The most recent halving occurred in April 2024, reducing the block reward from 6.25 BTC to 3.125 BTC. Historically, halving events have led to price increases due to reduced supply.

Ethereum meanwhile has no maximum cap on the number of coins released by mining. There are more than 120 million Ether tokens in circulation as of October 2022.

Every cryptocurrency has a different supply mechanism. Some have circulations dictated by their management teams, who will release more tokens at will or “burn” tokens to reduce supply when deemed necessary.

Demand

Demand for a cryptocurrency generally increases as more people become aware of the project or its use cases and applications grow. For example, as more decentralized finance projects launch on the Ethereum blockchain, the demand for Ether, the cryptocurrency used to conduct transactions on the blockchain, increases.

When cryptocurrencies are adopted as an investment tool, like Bitcoin, the circulating supply decreases, and the demand increases. When investors began buying and holding Bitcoins in early 2021, the pace at which new coins were created was outpaced by the rise in popularity and demand. The price of Bitcoin then increased significantly. Please note that past performance is indicative of future results.

Cost of production

For most major cryptocurrencies, new tokens are produced and released through a process called mining, which involves confirming blockchain transactions through a series of cryptographic equations requiring powerful computer processing units.

Miners are rewarded with new cryptocurrency tokens in exchange for this power-intensive process. As more people attempt to mine a cryptocurrency, the competition rises, and miners must buy up more computing power to be the first to verify a block and receive the associated reward.

This competition effectively raises the cost of mining, which in turn necessitates an increase in the value of the cryptocurrency. Essentially, if a cryptocurrency’s blockchain is in popular use, the mining activity will increase as well. This causes the value of its associated cryptocurrency to rise.

Availability

Mainstream cryptocurrencies are traded on multiple cryptocurrency exchanges, but smaller tokens may only be available on select exchanges. If a cryptocurrency is traded on a small number of exchanges, the spread is likely to be wider than that of major, widely available cryptocurrencies. As the token is offered on additional exchanges, its demand will rise and drive the price higher, granted other factors affecting the crypto’s price remain stable.

Cryptocurrency availability also applies to blockchains. Some cryptocurrencies are traded on their own blockchains but can also work on other blockchain projects. The more popular and widely used a cryptocurrency is, the more use cases it has, the more it should be worth.

Competition

There are thousands of different cryptocurrencies, and new tokens are launched every day. This creates a competitive marketplace for new crypto projects. Understanding what a specific cryptocurrency offers and how it differs from competing tokens is important to research before opening a position.

New cryptocurrencies are more likely to succeed if they improve upon an existing concept or application. For example, Ethereum was based on the Bitcoin blockchain but developed custom contracts that allow for more complex, custom applications. These added functionalities lead many people to believe Ethereum will one day surpass Bitcoin in popularity and market cap.

Governance

While cryptocurrency’s decentralized nature has kept it free from government regulation, cryptos are still controlled by their individual developers. The developers of a cryptocurrency can establish or change rules as they see fit.

For example, Ethereum released an updated network in September 2022 known as the merge that changes the verification of the blockchain from proof of work to proof of stake, making the verification process for new blocks on the Ethereum blockchain more accessible to anyone who owns Ether. This change affects both Ether’s cost of production and how it competes with other cryptocurrencies.

Some tokens are governance tokens, meaning all holders get a say in what changes are made to the cryptocurrency and its network. To make changes to the governance of a token, stakeholders are required to be in consensus by a majority vote.

Regulations

Government authorities in Canada, the United States, and other jurisdictions i continue to refine how to regulate cryptocurrencies with new laws and guidance introduced every year.

While a major draw for cryptocurrencies is their lack of central governance, regulation is required for cryptocurrencies to be traded as ETFs or futures contracts.

In Canada, cryptocurrency trading platforms that offer services to Canadians must be registered with their provincial securities regulator and comply with oversight from the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO).

In the United States, regulators are pursuing comprehensive digital-asset framework. Treasury Secretary Janet Yellen continues to advocate for clear, enforceable laws governing stablecoins and digital asset markets. Her stance emphasizes consumer protection, financial stability, and responsible innovation.

In 2025, two major legislative efforts—the GENIUS Act and the CLARITY Act—were passed to establish a federal framework for crypto regulation. These acts aim to:

• Provide regulatory clarity for stablecoins and digital commodities.
• Strengthen oversight by agencies like the CFTC and SEC.
• Address risks such as fraud, lack of transparency, and systemic threats

Despite these developments, many cryptocurrency enthusiasts still value the industry’s decentralized nature which allows for rapid innovation and peer-to-peer transactions without extra fees and intermediaries How the Canadian, US. And other regulatory regimes evolve will continue to influence the growth, stability and price dynamics of cryptocurrencies worldwide.

Public sentiment

How investors and traders at large feel about various cryptocurrencies can have huge effects on their prices. News headlines legitimizing cryptocurrencies or disclaiming the new financial assets can sway the sentiment of investors and traders.

For example, a positive tweet about Bitcoin from Tesla CEO Elon Musk has correlated to nearly a 10% rise in the cryptocurrency’s price. Similarly, when Musk announced Tesla would no longer be accepting payments in cryptocurrency, Bitcoin’s price fell 15%.

Price drivers in the 2020-21 Bitcoin rally

Now that we’ve covered the major price drivers of cryptocurrency, let’s look at the Bitcoin rally of 2021. By December 2020, Bitcoin’s price had grown to $30,000. It continued to rally to over $60,000 by the spring of 2021. What are some factors that caused this extreme bull run?

• A Bitcoin halving occurred in May, decreasing the mining reward by half and increasing the demand.
• Investors continued to seek out alternative investment vehicles after fiat currencies decline and inflation rises in response to the Coronavirus pandemic.
• PayPal announces crypto integration, indicating mainstream adoption of cryptocurrencies.

Crypto assets are highly volatile and may not be suitable for all investors. You should ensure you understand the risks before trading. Past performance is not indicative of future results.

This content is provided for informational and educational purposes only and should not be construed as investment advice. FOREX.com Canada does not currently offer digital currencies or cryptocurrency trading