Since the beginning of this decade, cryptocurrency usage has grown. In 2009 when Bitcoin was introduced, the crypto currency market boomed. Now, thousands of digital coins exist. Price fluctuations are extreme and occur daily. In this post, we explore factors that influence cryptocurrency prices.
Cryptocurrency Price Factors
1. As with other assets, supply and demands determine cryptocurrency prices. Prices increase when the demand of a certain cryptocurrency outweighs its supply. If supply exceeds the demand for a particular cryptocurrency, then its price increases.
2. Market sentiment: How investors and traders perceive the price of a specific cryptocurrency will affect it. Positive news events like the integration into mainstream finance systems of cryptocurrencies can help increase market sentiment. In the opposite direction, negative news and events such as regulatory clampdowns could cause market sentiment to decrease, and therefore prices to rise.
3. Prices may also be affected by adoption. More people and organisations adopting cryptocurrencies can lead to a greater demand, driving up the price.
4. Technology: Technology and new innovations can have a direct impact on prices. For instance, developing new blockchain solutions could increase the efficiency and safety of cryptocurrency trading, leading to higher prices and increased adoption.
5. In the crypto market, speculation plays a significant role. Many traders and investment firms buy and sale cryptocurrencies in order to take advantage of price changes. It is possible that this type of speculation can create extreme fluctuations in price.
Why Do Cryptocurrency Prices Volatilize?
The volatile nature of the cryptocurrency market can be blamed on several factors.
1. Unregulated: The price of cryptocurrencies is subject to huge fluctuations, and authorities are in no position to intervene. A lack of regulatory oversight makes cryptos vulnerable to fraud, manipulation, and other fraudulent practices.
2. Cryptocurrencies are devoid of any intrinsic value. Market forces determine their price, which is why it can be volatile.
3. Limited liquidity. Because many cryptocurrencies do not have easy trading for fiat currencies, they tend to be limited. When large order are placed, this lack of liquidity may lead to price fluctuation.
4. Hype & speculation: We’ve already discussed that speculation & hype play a major role in the cryptocurrency industry. As a result of the hype, prices can skyrocket for new blockchains and cryptocurrencies.