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Mar 15, 2018
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Cryptocurrency price keeps changing—and sometimes this happens very quickly. If you are going to trade cryptocurrencies, then you must be aware of the market forces that determine the price of individual cryptocurrencies.
While there is no guarantee that the factors listed here will affect cryptocurrency price, they do have a greater bearing on the prevailing prices of the digital assets. To begin with, it’s important to understand the reason behind market volatility in the crypto space. So far, analysts identify the following factors as having the potential to affect cryptocurrency price.
Exchange Listing
A major reason for cryptocurrency price shift is exchange listing. Once a cryptocurrency gains access to one of the main exchange platforms, its price skyrockets. This was evident in the case of Litecoin when Coinbase added it to their list of cryptocurrencies. Why is this so? Listing a cryptocurrency on an exchange platform makes it easily accessible to many people who would like to purchase.
In addition, major exchange platforms have User Interface that is easier to explore, making it easier for a non-technical person to purchase a digital currency without difficulty. Therefore, when a large exchange platform such as Coinbase, Bitfinex, or Bittrex announces that they are going to list a cryptocurrency that you trade, the price will obviously shift. This could provide the boost you’ve been looking for.
Software Upgrades
In the case of Bitcoin, software upgrade led to the creation of Bitcoin Cash, a hard fork of the original bitcoin. Such upgrades are often recommended to improve the quality of the network, especially the transaction time. For Bitcoin, it could take up 30 minutes to complete a single transaction. However, after the split, network improved and the price of the cryptocurrency shot to new highs. Software upgrades take place across all cryptocurrencies, and they can influence the price of a digital currency. As a trader, you should be on the lookout for such changes and their implications.
Public Hype
In stock markets, fake tweets can influence the price of a stock. In the same way, public hype can have a great impact on the value of a cryptocurrency—in a positive or negative way. Therefore, before you disregard anything as just hype, you should know that hype moves crypto market too. If you follow the hype, remember to finish your trade before it dies down.
Wallet Upgrades
Whether you are a regular crypto trader or you want to buy and hold, a strong digital wallet is a necessity that you cannot afford to miss. Especially for the latter category, storage is an important aspect of the game. Cryptocurrency must be stored in a safe digital wallet. Another option is a cold storage solution.
Since cryptocurrency is simply software, the wallet software has to match that of the cryptocurrency. To illustrate this point, it is impossible to use Windows software on a Mac—it cannot work. Therefore, in the absence of a good wallet, a cryptocurrency will attract fewer investors and this can affect its pricing.
However, when the wallet undergoes effective upgrades, the cryptocurrency becomes accessible to more people and the price eventually improves as it becomes more valuable. Lack of a strong wallet could be the reason it has a lower price.
Platform Applications
Some cryptocurrency networks such as Ethereum, host other applications, which might have their own cryptocurrencies or tokens. If one of the decentralized applications does well, it might influence the price of the cryptocurrency on the underlying platform. While the value o tokens should be independent of the value of the platform, only a few people understand this and the price of one token on the platform can easily affect that of Ether.
If you are a trader on a particular crypto platform, you should be keen on the promising apps on the platform, as they have a bearing on cryptocurrency pricing.
Government Regulation
Government regulation can have a great influence on cryptocurrency pricing. A typical example is Venezuela, which launched arrest of bitcoin miners. This lack of economic freedom has forced miners to hide and to abandon bitcoin mining for Ether.
While it is currently evident in Venezuela, no country is spared from the occurrence. In fact, any declaration by SEC or NFA could greatly affect the value of various cryptocurrencies. The SEC already banned some ICOs based on their suspicious pump and dump schemes. It is important to stay informed of the government regulation trends, to avoid cryptocurrencies that government arms are likely to flag.
What causes cryptocurrency price volatility?
Rate shifts in the crypto market follow changes in the market forces such as demand and supply, which often follow a specific economic law. Based on that law, there is a connection between demand, the supply of a product or asset, and its price. The law is also applicable in the crypto market.
To help you understand the mechanics of cryptocurrency pricing, it is advisable to understand first the reasons that affect price moves in the crypto market.
Crypto market analysts believe that it is essential to establish some specific criteria on which to base cryptocurrency pricing. While the factors can fall into two broad categories of demand and supply forces, they can further be narrowed into external and internal factors that affect price volatility.
Internal Market Reasons
These reasons have to do with factors that affect internal market only. For example, traders and especially the most active ones can affect cryptocurrency price. Universally, a cryptocurrency with a higher market capitalization has less influence from major traders. The opposite is equally true.
For instance, the “bulls” are likely to affect pricing by increasing it, while the “bears” are likely to decrease pricing. The “middle” traders are at the mercy of the willingness of the last to purchase the digital assets, to sell them, or to hold until a suitable price comes. The majority of traders can also influence pricing based on how they estimate the overall price tendencies of a particular cryptocurrency.
When more middle traders influence cryptocurrency price online, especially bitcoin price, the price tendency predictions by technical analysts become more effective. The overall estimate depends on the performance of bitcoin in the last year, month, or week—and on how it performs today.
In the next piece, I will highlight the external factors that affect cryptocurrency price. What other factors can you add to this list? Join the conversation over at Telegram (https://t.me/coinstaker)
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Author info
Tony is a writer for the crypto space. He presents cryptocurrency and blockchain topics to the public in a way that he only can. While carefully researched, this article should not be taken as an express investment guide. Do your own research and consult a financial advisor before you invest in cryptocurrency.
