Considering how popular cryptocurrency trading has become, perhaps you want to get in on it but are unsure of some things such as what can affect the value of the currency. While it may seem complicated at first you can simplify it quite a bit to better understand the concepts behind this process.
We’ll be covering everything that can affect crypto values and the ones you should most watch out for if you want to get into crypto trading. If you have any further questions about this concept or anything else related to cryptocurrencies we recommend checking out CryptoNews.
Supply and demand
As with any currency or type of goods, the law of supply and demand will be one of the main factors that will decide the price. To put it simply, if the supply of a coin is very low or if the demand for it rises suddenly then the price will go up as people will be willing to pay more. If the supply is quite high or the demand just isn’t there then the inverse will happen and the price will go down.
While this rule applies to almost all goods and currencies, certain attributes that only crypto has affect it in an interesting way. Since coins have a maximum supply, once it is reached then only the demand can end up influencing the prices which will mean they will be able to vary more just based on demand as supply will be static. Another factor at play is the fact that coins are distributed evenly.
Volatility and stability
With markets that have existed for a while, they tend to trend towards evening out supply and demand i.e. reaching equilibrium. Although this is almost never reached (or at least not for long) the trend causes them to keep going towards it. Since crypto markets are still very new in comparison to these older markets they are far more volatile.
While this may seem bad it is ironically one of the draws of cryptocurrencies as the lack of stability may be interesting to many and can lead to massive payouts, albeit at higher risk. This volatility is seen in the fact that the values of coins can vary greatly within a certain timeframe, sometimes even having massive spikes or dips within as little as a day. It may be the possible reason why people try to make money with grid trading bots.
The existence of this volatility makes it so that you have to keep an eye on the prices far more than with traditional markets, but many find this appealing as keeping a close watch can allow you to predict dips or spikes more accurately leading to potentially incredible profits. In short, volatility increases both risks and rewards exponentially which will deter some but appeal to others depending on how bold they are.
Cost of production
With bitcoins and similar cryptocurrencies, there is a certain cost that exists to be able to produce the coins. This is dependent on many factors such as the hash rate required to mine, the electricity price, and similar things but it can affect the prices of the coin as more or fewer people may be willing to mine depending on these prices.
This generally doesn’t end up varying too much, while electricity can vary in price from place to place it doesn’t necessarily go up or down in all places evenly which makes the average price somewhat stable. The cost of production compared to the cost of the coin can make or break if it is even profitable to most people to attempt the endeavor.
Competition
While there are a few big cryptocurrencies such as Bitcoin or Ethereum, many new coins are being created. As the number of cryptocurrencies that people consider serious grow competition will follow. This will mean that people may diverge from one currency to another which will shift the prices of both at the same time.
While this isn’t that big of a consideration as of now it will almost certainly become a big deal in the future as more and more cryptocurrencies begin to rise above most others and end up reaching the heights of ETH or BTC. We believe that most investors are interested to see how this will affect the markets due to their already high volatility. It will certainly be interesting.
Regulations
Since cryptocurrencies are still a relatively novel concept in the grand scheme of things not all places have regulations placed on them and even if they do they often are subject to change due to how new the laws are. Depending on how strict or lenient the countries are (especially the larger ones) it can affect the trade and production of crypto coins massively.
Crypto is still mostly unregulated. This means more freedom for people to use it in places where they may not have access to traditional banking systems, but it also means that criminal activity could be funded via these coins. This lack of regulation means that a lot of large investors are still wary of crypto.
Media influence
Another thing that is worthy of note is the influence of all kinds of media on the prices of cryptocurrencies. A single tweet from a big-name investor or one news story can greatly affect the prices of one or many coins suddenly. This is a factor that is very hard to predict, but it is still important to keep its existence in mind.
Try not to stress too much about whether something like this will suddenly happen and crash a certain coin as it’s somewhat like fearing a meteor hitting you, sure it can happen at any moment but if there are no signs of risks you shouldn’t be dreading it.
Conclusion
While the factors that affect the prices of cryptocurrencies are numerous it is still possible to understand them, see how they work, and integrate this knowledge into your own crypto trading to hopefully mitigate risks and increase rewards as much as possible.
We wish you the best of luck in all of your coin-related endeavors and hope that you will be able to more accurately predict the constant price fluctuations and market changes.
Hi there! I’m Sethu, your go-to guy for all things tech, travel, internet, movies, and business tips. I love sharing insights and stories that make life more interesting. Let’s explore the world together, one article at a time!
