It is easier to predict next week’s weather than it is to guess the price of cryptocurrencies. While advanced scientific tools are available to accurately assess a storm’s possible path, or the specific time thunderstorms would occur, cryptocurrencies belong to a world of their own. The volatility of cryptocurrencies is influenced by numerous market forces. Though such forces are seemingly difficult to pin down, one can propose an intelligent guess where a digital currency is going by observing specific market patterns, as well as human and social behaviour. One need not be a genius in finance to get rich via cryptocurrency. An efficient crypto-trading mindset is acquired through experiential trial and error. After all, cryptocurrency is not an exact science. However, the below factors serve as a suitable gauge to determine the rise and fall of a given digital currency.
While tweets, whether authentic or fake, can have an influence on the stock market, the same dynamic can be seen in cryptocurrencies. Public perception can have a significant effect on a digital currency’s cost. People who believe in a coin’s value would highly likely help such a coin maintain or increase its price. The same dynamic applies when people believe that a coin has little worth, as that same coin will either be immediately sold or not bought at all. The process of buying or selling has an impact on a coin’s price. For instance, when public perception was rife that Bitcoin’s price was to rise, people bought it in droves – consequently causing Bitcoin’s value to further increase. When its price did increase and people started selling it, its cost was pegged at 3,000.
Public perception is similarly influenced by the media. Essentially, if mainstream news releases a report on Bitcoin’s impending price increase, the surge of investors purchasing Bitcoin would consequently cause its price to shoot up. If mainstream news releases a negative report on Bitcoin, public perception would be just as negative and thus cause its price to fall. The fear elicited due to a potential decrease in Bitcoin’s value would compel people to sell their digital coins to avoid losing their hard-earned money.
The price of cryptocurrency is also influenced by government regulation. As cryptocurrency’s popularity and rates rose, governments in different parts of the world struggled to make sense of, if not regulate, the industry. The purpose of government’s regulation was to collect tax revenues from this emerging market while also protecting its vulnerable investors.
Early this year, China’s ban on local cryptocurrency exchanges and ICOs resulted to a plunge in the price of crypto. Similarly, South Korea issued rules that ushered in the beginning of its government’s crackdown on local virtual currency exchanges – the result of which saw the price of Bitcoin fall by 18%.
The United States, via its independent agency, the Securities and Exchange Commission, have recently required cryptocurrency exchanges to register with the organization – the effect of which made Bitcoin’s price fall to $9,500 (from $11,500) in a mere four days.
Supply and demand
The simple logic of supply and demand is one of the most critical factors that affect cryptocurrency price. This basic economic rule states that if there are few coins to go around, supply is limited. But if demand for it continually increases, its price naturally increases. While major traders exert little influence on cryptocurrencies with a high market capitalization, most traders are said to have the ability to influence a cryptocurrency’s cost based on the total estimate they have on a given digital currency’s price tendencies.