Know What Drives Cryptocurrency Price
Today we are here to discuss cryptocurrency prices. There are many controversies and myths around the world right now on cryptocurrency price. We will be researching a few of them to vanish the cloud upon them for you. Let us have a basic knowledge of cryptocurrency first.
- A cryptocurrency is a digital currency that works as a medium of exchange. Cryptocurrency uses cryptography to safeguard and verify transactions. Most importantly, cryptocurrencies are limited entries in a database that can only be changed if the specific conditions fulfill.
Now we will focus on our main point of how cryptocurrency works.
- The factors behind Cryptocurrency Prices:
• The basic principle of economics demand and supply like other market prices also drives the cryptocurrency prices.
• Another factor that determines the price is the token utility and its usefulness in the blockchain platform. Mining difficulty also affects cost.
• As more severe mining difficulty makes it harder to increase the supply of a coin.
- Cryptocurrency price fluctuation:
• Liquidity – If we compare the established or traditional market, the cryptocurrency market does not offer as much liquidity. The difference in total market cap between fiat currency and cryptocurrency is over USD 89 trillion. This difference is as vast as a difference of 36,000 percent. So, we can conclude that the crypto market lacks liquidity.
• Daily trading volumes – Cryptocurrency daily trading volumes fluctuate at around USD 14 billion. On the other hand, traditional markets deal at approximately USD 5 trillion.
• Market – Here is something that may attract you to this crypto market as the market changes quickly; there is a high chance of an increase in the volatility of digital currencies.
• Adopters – Some good news for the crypto world is according to recent reports over 100,000 new adopters were becoming part of the digital currency industry daily. Many new users have a vested interest in whether specific cryptocurrencies move up or down. It is a significant factor that is adding up to the volatile nature of the market and driving up disruption.
• Price manipulation – The manipulation of prices is widespread in newer markets. Central exchanges manage the flow of cryptocurrencies, which means they have a lot of motivation to grow their revenues. It is done by ruling the feeds of the prices displayed to get traders to buy or sell particular currencies.
- Most significant determinants of cryptocurrency prices:
• The basic economic principle “Supply and demand is the most important determinant of cryptocurrency prices,” works for the crypto market as well. The cryptocurrency’s value will drop if a cryptocurrency has a high supply but a little demand from traders.
• The main reason behind the scarcity element that boosted up the price of Bitcoin climb to its highest levels. The quantity of Bitcoin is capped at 21 million BTC while the demand has rocketed in recent years.
• If a token gets negative publicity, generally the price of that coin takes a dip. While, if a coin gets high profile support and good media coverage, the cost would almost certainly increase. Which means human emotion and hype influence prices.
- Price change of cryptocurrency over the past few months:
• We will take the particular case of Bitcoin here to compare our tracking of fluctuation in the Crypto market. As Bitcoin is at highest-grossing, so we choose Bitcoin as our option in here.
• Bitcoin started 2017 at under USD 1,000 and took a dip when China announced investigations into cryptocurrency exchanges in the country. The price of Bitcoin dropped to around USD 775 and the overall cryptocurrency market cap stood at close to USD 15 billion.
• By April 2017, Bitcoin got legal in Japan that helped the price to jump back up over USD 1,000. The market cap stood at around USD 26 billion at that stage for the cryptocurrency market
• On Sept. 4, China banned ICOs. Bitcoin dropped to about USD 3,300 by mid-September 2017, but by the end of September 2017, it reached well over USD 4,000. The cryptocurrency market cap was just below USD 150 billion at this point.
• At the end of January 2018, the price of Bitcoin came back down to around USD 10,000. It reached lows of USD 6,000 in February 2018. It again pushed back up, passed over USD 11,000. The overall market cap recovered to about $500 billion.
- Accuracy of prediction of cryptocurrency:
Like the traditional market, the crypto market also cannot be predicted accurately and positively. Here are some factors to help you get a picture of the future demand for cryptocurrency.
i) The nature and level of regulations introduced in dominating cryptocurrency markets.
ii) The level of cryptocurrency acceptance in the coming year and beyond.
iii) Growth in the cryptocurrency futures market.
iv) The advantage of tokens and the ability of technology to solve real-world problems.
Concluding crypto-assets and fiat assets have seen many fluctuations widely in price. By studying the past price history of crypto assets, we may be able to make reasonable assumptions about the future or maybe not. Please share your views with us.
There are several factors that affect the prices of Cryptocurrency, understanding the trading price is quite difficult. I have got the article read and know how cryptocurrency price works!
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