What Moves Cryptocurrency Markets?
The world of cryptocurrency and blockchain is almost entirely unregulated. There are no laws, controls or other mitigating factors to the volatility throughout this market. Being the first and most well-known cryptocurrency, Bitcoin was created in 2009.
There are thousands of cryptocurrencies, with Bitcoin, Ethereum, Litecoin, and Ripple being the most popular. Cryptocurrencies can be divided into three types: proof-of-work, proof-of-stake, and a combination of the two. New cryptocurrencies are sometimes created through an initial coin offering (ICO), during which they are sold to raise money for their project.
While many would-be investors shy away from such a volatile environment, those who are experienced understand that value can change just as quickly as it might in traditional markets. Some suggest that cryptocurrency prices are more likely to shift because there is less volatility protection than conventional investment types or when you open trust account for instance.
Before large companies announce news about new products/services being developed, insiders can buy up a large number of coins at a lower price so that when the news is released, the value of those coins skyrockets. This has been a well-known tactic in traditional investment types for decades. Still, it’s only recently that crypto users have begun to realise how valuable this sort of information can be.
Regulations in the US have finally begun to catch up with cryptocurrency markets because these currencies are moving into the mainstream. Other countries may follow suit soon, too, which could help stabilise prices by putting an end to the massive swings currently seen throughout these markets. While regulation can be tough on some investors, especially those who want to maintain privacy over specific coins they invest in, it’s hard not to imagine the impact it might have when cryptocurrencies begin trading more closely with fiat currency values.
The process of mining new coins contributes significantly to price fluctuations. For example, miners might start selling their holdings to cover costs if they are having trouble finding blocks that result in a profitable payout. This could lead to a downward spiral where the value of coins continues to drop because people no longer have faith in the currency. Alternatively, if miners can find lots of new blocks and receive large payouts, it could trigger an increase in demand for that specific coin, which would drive up prices.
Announcements by Major Players
When countries like China make public statements about their stance on cryptocurrency, it can significantly impact prices. For example, if China announced that it would be shutting down all exchanges, the market would almost certainly react negatively.
Cryptocurrency prices can also be influenced by how the media portrays them. For example, if there are negative headlines about Bitcoin or another coin, the value will likely drop as people panic and sell their holdings. However, if the media reports positively on a particular currency, its value will probably increase as people buy-in.
Supply and Demand
Finally, the most fundamental principle of economics still applies to cryptocurrency markets: when there is more demand for a particular coin than the available supply, the price will go up. And vice versa – when there is more supply than demand, the price will decrease.
The Bottom Line
Understanding these factors is essential for anyone looking to invest in cryptocurrencies. While there is no one guaranteed way to predict how prices will move, it’s vital to be aware of what can impact them. By being informed, you’ll be in a better position to make decisions that could lead to profitable investments.
Cryptocurrency markets are still highly volatile and influenced by a variety of factors. However, if you understand these factors, you stand a better chance of making money by investing in them. Do your research before buying any coins – never trust someone else’s opinion entirely – and remember that nothing is guaranteed in this market. With a bit of luck and some sound judgement, you could see your portfolio grow in the not-too-distant future.