The cryptocurrency market is as volatile as it is exciting. If you’re new to the scene or just looking for an update on the latest trends, here are some common factors influencing cryptocurrency prices.
Supply and demand
The most basic economic principle of supply and demand dictates that the price of a product is determined by how much it’s in demand compared to its supply. If more people want to buy a product than sellers are willing to sell it, then the price goes up because there’s too much demand for limited supplies. Conversely, if there are more sellers than buyers for a product, the price will go down because there’s too much supply for limited requests.
This simple concept can be applied across all markets: stocks and bonds, houses and cars, and even labor on Fiverr (if you’re willing to pay enough money).
In cryptocurrency markets specifically, this relationship is especially important when looking at Bitcoin since its maximum supply has been known from day one. There will only ever exist 21 million BTC tokens in existence. However, the smallest unit of a Bitcoin is a Satoshi. One Satoshi is 0.00000001 BTC, making the currency more divisible than traditional money.Â
Hacks and scams
The cryptocurrency market is still relatively young, and several factors can impact the value of various coins.Â
One common factor is the threat of hacks and scams. While hacks are more commonly associated with exchange sites, they aren’t always a problem for exchanges—they also happen to investors.Â
Scams can be sophisticated, hard to spot, and hard to avoid.
Media coverage
Like anything else, people are more likely to invest in something if they believe it will make them money. If you hear about a cryptocurrency set to skyrocket over the next few months, you might be tempted to hop on board and buy some yourself.Â
On the other hand, there’s been a lot of negative press lately about how dangerous or useless these currencies can be. As such, it might seem like a bad idea. But, of course, it all depends on what side of the fence you’re standing on at any moment!
The media coverage surrounding cryptocurrency can have an enormous impact on its price. Positive coverage increases demand for crypto assets, while negative coverage decreases demand for crypto and drives down cryptocurrency prices.
Regulation
While regulation is essentially a double-edged sword, protecting investors, consumers, and the industry is necessary. Despite what some critics may say about regulation being bad for cryptocurrencies, it also has its positive aspects.Â
For example, regulations can help promote consumer security by preventing theft or fraud. Regulations also ensure that cryptocurrencies work with proper financial institutions and government agencies to avoid illegal activities such as money laundering and terrorism financing.
Regulations have their drawbacks too, though. They may limit innovation and creativity in the cryptocurrency space because of the heavy bureaucracy involved with meeting compliance standards set forth by regulators.
Cryptocurrency is its own animal
Cryptocurrency is a new asset class with unique characteristics that make it different from other assets.Â
For example, cryptocurrency is not correlated with other assets, such as stocks and bonds, but it may be highly correlated with other cryptocurrencies.Â
Cryptocurrency prices are volatile and often move independently of the stock market, which can provide another source of volatility in the market.
Conclusion
Cryptocurrency is a new and exciting asset class that can be volatile. Cryptocurrency prices can rise or fall by over 10% on any day.
However, with the right market knowledge, you can use this to your advantage by choosing an optimal investment strategy for your goals and risk tolerance level.
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