If you’ve ever wondered what determines the value of Bitcoin, other cryptocurrencies, or the various tokens that go with them, you’re not alone. While there are numerous factors that influence the fluctuations in the price of cryptocurrency, there are also some common themes that can help you better understand what causes cryptocurrency to rise and fall, so you can decide whether it makes sense to get involved with it. Here are things you need to know about what makes cryptocurrency rise and fall.
How do crypto prices fluctuate?
Every cryptocurrency has a value, based on a variety of factors. The market is extremely volatile, making it an ideal way for traders to make money by buying low and selling high. This volatility has its positives—sometimes you can get in at a low price point before a currency soars in value—but it also comes with downsides. In today’s crypto climate, there are many reasons why prices could rise or fall, from good news to bad press, from government intervention to disruptive technology.
Which factors make cryptocurrency go up?
For starters, one of them is speculation. Any time there’s a new technology—or something that seems like it could be a new technology—you’re going to have speculators looking for ways to get in on it early, before it becomes something mainstream. People see a lot of money flowing into cryptocurrencies, and they jump in too. The more people buy up a cryptocurrency at a certain price point, even if they never use that cryptocurrency again afterward, the higher that price point becomes. That’s why bitcoin soared from around $200 per coin in January 2017 all way up past $1,000 by December of that year: speculators flooded into crypto markets, pushing up prices.
Why is there so much volatility?
When it comes to price volatility, there are two main reasons why cryptocurrency markets are so unpredictable. The first is that they’re comparatively new—the crypto market only emerged after Satoshi Nakamoto launched Bitcoin in 2009. Since then, dozens of digital currencies have emerged as potential competitors or substitutes for Bitcoin, which has made investment risk even more widespread. Second, cryptocurrencies are heavily dependent on their communities. Since most cryptos are open-source projects driven by anonymous volunteers, many of their communities have specific opinions about what kinds of updates should be made or what kinds of new features should be added. This level of diversity can lead to all sorts of disagreements within communities, which can translate into dramatic changes in price based on rumors alone.
How does a bull market differ from a bear market?
A bull market is an economic boom that causes stock prices to rise rapidly, resulting in investors seeing large returns. Bear markets are exactly what they sound like—the opposite of a bull market. When stocks fall drastically over an extended period of time, it can lead to some pretty unhappy investors. It’s important for every investor to know what they’re getting into before entering either type of market so that they can be prepared for potential losses or gains.
Do You Know What Makes Cryptocurrency Rise and Fall?
As cryptocurrency has become more popular, it’s also become more complex in many ways. There are multiple coins that can be exchanged in different ways, and there are various reasons that crypto coins rise and fall in price. If you’re planning to trade in cryptocurrency, it’s important to understand what makes the market rise and fall so you can time your trades accordingly. Here are some of the main factors that make cryptocurrency rise and fall in value.
1) Government Regulations
One of the biggest factors impacting cryptocurrency is government regulations. While some countries have welcomed digital currencies with open arms, others remain more conservative. For example, China had a huge impact on bitcoin prices after it announced that it would be banning bitcoin exchanges in September 2017. In February 2018, however, South Korea’s new crypto regulations took effect, increasing trading fees from 0.2% to 2%. As you can see from these examples, government regulation is a major factor influencing how cryptocurrencies perform on a global scale. If you’re looking for a safe way to invest in cryptocurrency, your best bet may be staying up-to-date on current regulations happening around your country.
2) Market Sentiment
Ever wonder why some cryptocurrencies go up in value while others stay flat? According to research by Goldman Sachs, market sentiment is one of two major factors that determines how well (or poorly) a cryptocurrency performs. If investors think something is undervalued or has potential for growth, they buy. If they think it’s overvalued or about to decline, they sell. To determine whether something is undervalued or overvalued, investors look at data like charts (which show historical trends), price (how much each coin costs) and volume (the number of coins that are traded during a period). Knowing these things can help you assess how likely it is for a crypto to rise in value in both short-term and long-term investing periods.
3) Supply and Demand
There are two factors that determine how much a cryptocurrency is worth: supply and demand. One coin might have greater potential than another, but only if people want it in high numbers. So when it comes to predicting whether a coin will rise or fall, all you have to do is consider its popularity. If many people are using, trading or investing in it, then there’s a good chance that crypto will continue to rise in value. But if no one’s interested, you could be left holding onto coins with little to no value—aka losing money.
4) Other Factors Affecting Price Fluctuations
It might seem like cryptocurrency prices are solely driven by public interest, but there are many other factors that play a role in determining their value. Understanding how these factors work will help you make informed decisions about which cryptocurrencies to invest in. With that said, remember that people are still largely responsible for pushing up or down prices—there’s no cryptocurrency version of gravity or inertia. So while it’s important to keep all factors in mind, don’t get too distracted by these details when you actually start trading. Just have fun with it!