5 main factors affecting cryptocurrency prices
If you want to understand the way digital market prices move, here are now 5 key factors that affect cryptocurrency prices.
In the cryptocurrency market, many investors and speculators have mixed and sometimes opposing feelings. Between optimism and pessimism, fear and reassurance, reservation and adventure, and between this rise and that decline, the trading methods of dealers in this market vary. There are those who follow their intuition without a scientific or cognitive basis in making the decision to buy or sell, and there are those who study and analyze various indicators in the world of technical analysis.
The fluctuations in the prices of cryptocurrencies often make headlines in the virtual asset market, so that fluctuations that sometimes reach 20% up or down during a single day are no longer strange, but what determines the rise and fall of cryptocurrencies?
5 factors affecting the price of Bitcoin and its siblings
There are several main factors that lead to the rise or fall of cryptocurrency prices. The following report reviews the most important of these factors:
First: supply and demand
This is a basic economic principle. If a cryptocurrency has a high token supply with little demand from merchants and users, the value of the cryptocurrency will decrease. Conversely, if the supply of a particular cryptocurrency is limited and the demand is high, the value of the coin will increase.
This is related to the element of scarcity that drives prices and is one of the factors that drove the price of Bitcoin to its all-time highs. The supply in Bitcoin stops at 21 million BTC — which is relatively low compared to other tokens — while demand has skyrocketed in recent years.
Speculation is one of the most factors that can affect the prices of virtual currencies. Speculation can raise the price of an asset to very high levels, and it can also take it to extremely low levels.
Rapid and strong volatility is one of the things that distinguish digital currencies and open up the appetite of traders, because it creates opportunities to earn money through short-term buying and selling, but of course it comes with higher risks.
Speculators aspire to make huge fortunes by dealing in electronic currencies, but they buy and sell them very quickly, which leads to short-term fluctuations.
The perception of these currencies varies – from country to country – from recognizing these virtual assets, banning them or warning against their use, without banning them or considering them illegal, or being strictly regulated, and new decisions are being made all the time.
In the era of globalization, decisions in one country can affect the entire world. Cryptocurrency prices tend to respond quickly to any decisions regarding rationing or banning them, for example, when Japan announced that Bitcoin was considered a legal tool for trading, its price rose strongly in just twenty-four hours. Japan, which previously represented only 1% of the trading volume of Bitcoin, reached 6% after its decision to legalize dealing in cryptocurrencies, and even Japan achieved 55% of the global trading volume in some days.
And in the opposite example. When China earlier imposed strict measures on cryptocurrency, which caused a major crisis, especially since China generates about 60% of Bitcoin. However, it later eased these procedures and allowed mining companies to operate under much less stringent procedures, which greatly contributed to increasing confidence in cryptocurrencies.
Fourth: Media hype
Positive media coverage is one of the main factors driving cryptocurrency prices. Where positive media coverage causes a type of media hype whose dimensions are well known.
If a currency is getting some negative publicity, you will generally see that currency’s price decline. Whereas, if the currency itself gets major support and good media coverage, the price will surely increase. This means that prices are highly affected by human emotions and hype.
This pattern was most evident during the early days of Bitcoin, when major media outlets began to report in detail on the new currency. In light of the increasing media coverage of news and price fluctuations of Bitcoin and its siblings, in addition to some other factors, it has become difficult to determine the impact of the media alone.
Fifth: political developments and events
Events and developments around the world that seem unrelated to digital currencies can affect prices, as these assets are usually seen as an alternative to traditional currencies supported by governments, so when investors lose confidence in their paper money due to economic or political developments, they can resort to “ Bitcoin” or its peers, which leads to an increase in prices.
Some experts believe that digital currencies can replace real holdings of gold as a safe haven for value when things turn for the worse, and although the World Gold Council believes that these assets are too volatile to perform that task, analysts are likely to rise with the turmoil of global political conditions. .
Digital currencies benefit from shaky confidence in fiat currencies, amid quantitative easing policies in which major central banks print fiat currencies with little cover in gold or traded commodities.
As in traditional markets, there are no guarantees when it comes to future price predictions for the cryptocurrency market.
It is quite obvious that cryptocurrency price predictions should be taken with a degree of scepticism, but there are always factors to look at that will certainly have an impact on the future price of Bitcoin and the broader cryptocurrency.
In light of the amazing and rapid development in the world of cryptocurrency and blockchain technology, for those who are taking their first steps in this field or want to do so, the first step is to follow the big names in the world of cryptocurrency (discover 7 profitable cryptocurrencies to invest). Not only is it important to be aware of the latest developments in the world of cryptocurrencies, what is changing and where things are going, but also the technical indicators in the world of technical analysis must be taken into consideration.
Bitcoin can also be a long-term investment, since its supply is not subject to a specific system, in addition to many advantages that exceed the advantages of some national currencies, as it is a global currency, and it is not restricted by laws and regulations that determine the amount of its supply and demand by central banks, In addition to the ease of transferring it from one country to another, and its transactions do not bear the administrative and transfer costs imposed by banks on the currency markets and financial trade. Being a relatively new market, and in the absence of a mathematical mechanism to predict the movement of this currency in the future, it all depends on the caution of the buyer. Our only advice in this regard, do not invest more than you can afford to lose.
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