What factors influence cryptocurrency?

 UNDERSTANDING THE FACTORS AFFECTING THE PRICE OF CRYPTOCURRENCY.

The price of a cryptocurrency or any other asset is determined by various factors.

The movement of prices depends on the supply and demand in the market. But other factors influence the price of the cryptocurrency.

If you want to understand what affects the cryptocurrency market, this article is just for you. Here we will discuss the factors that influence cryptocurrency prices.

WHAT INFLUENCES THE CRYPTOCURRENCY MARKET: INTRODUCTION

The cryptocurrency market has changed the financial sector to a tipping point, giving people access to digital money, fast cross-border transactions, and decentralized governance. 

Given the potential of the cryptocurrency market, it is not surprising that many investors have turned to cryptocurrency investments to diversify their portfolios and potentially increase their wealth.

However, cryptocurrency does not move in the same way as stocks and forex. While there are some important similarities, cryptocurrency investing is a whole new industry.

Several factors affect cryptocurrency prices, many of which are far more technical,  including supply and demand, mining, internal governance, and crypto regulations.

Another key aspect to note about the cryptocurrency market is that as  Bitcoin enters a downtrend, so do many other cryptocurrencies  (especially those similar in functionality). Or sometimes when Bitcoin loses value, traders move to other cryptocurrencies, which could rise.

The same can also be said for Ethereum and other cryptocurrencies which focus on developing smart contracts and decentralized apps (dApps).

While several factors can affect cryptocurrency trading,  one important thing to remember is that most of the factors mentioned below cannot always be determined  . Price forecasts are speculative!

The only way to truly estimate which direction a cryptocurrency may move is to apply fundamental or technical analysis and stay up to date with crypto news, technological advancements, and market sentiment.

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FACTORS AFFECTING THE CRYPTOCURRENCY MARKET

With 1000 cryptocurrencies in existence, understanding the cryptocurrency market can be a challenging task, especially for beginners and newcomers in the Market.  concerns that can also affect cryptocurrency investments. Did you know Bitcoin has almost the same energy consumption as Switzerland?

4. Scandals involving developers

Believe it or not, the scandals involving developers also have a significant impact on the cryptocurrency market. 

And there is always drama in the cryptocurrency industry and a lot of confusion between projects.

One of the best-known examples is IOTA. The IOTA president said an independent security researcher 'needed a slap' after criticizing the project. This then led University College London to remove its support, which negatively impacted IOTA with the loss of investor confidence.

5. Regulation

Perhaps one of the main factors affecting the cryptocurrency market is regulation. It is no secret that cryptocurrency regulations vary from country to country and fall under a gray jurisdiction. 

As a result, cryptography regulation is constantly evolving - some see this as a good thing while others don't. Regulation is actually better for traders as it provides some assurance and security, with exchanges or ICOs less likely to simply disappear.

The United States and China are two of the biggest players when it comes to cryptocurrency regulation. The United States because most countries will follow their policies and China because there are many Chinese investors involved in cryptocurrency trading. 

While China has notably been tougher on cryptocurrencies, the US is more concerned about whether cryptocurrencies are considered stocks or commodities. Indeed, the US is trying to bend cryptocurrency to fit the regulatory policies it already has instead of creating new regulations.

One thing is certain: Regulatory announcements have a significant impact on the cryptocurrency market as well. The truth is that if the requirements introduced by the national authorities become more restrictive, the prices of cryptocurrencies could decrease.

Over time, regulation is likely to become a more important factor. When this will happen is yet to be seen, simply because legal practices are still trying to keep pace with technological developments.

Note that it's possible that when Facebook's Libra finally launches, regulation could become crucial, simply because Libra could give millions of people access to cryptocurrency. 

After all,  cryptocurrencies are no longer reserved for tech-savvy and big investors, but for ordinary people.

6. Utility

In the cryptocurrency market, utility is related to prices. By this, we mean how you can use cryptocurrency in addition to paying for products and services.

To have a certain utility value, a token must have a well-defined purpose, a specific role in its ecosystem, and affective characteristics; in other words, its value derives from the functions it has. This could be related to smart contracts or dApps, for example!

Two great examples of utility tokens are Binance Coin and LEO, which can be used on the Binance exchange and the Bitfinex exchange respectively to get a discount.

The utility can cover other properties as well, such as practical use.

An example would be stable coins, such as Legare, designed to be tied to the US dollar to reduce risk. To put it simply, traders can use Tether to protect their trade when the market is too volatile to trade.

7. Whale Investors

The influence whale investors have on the cryptocurrency market is evident. Here we should note whale investors are investors with very high capital. They can be individuals or, more likely, large institutions.

Investors in whales can influence the market by investing a large amount in the market or by selling a large amount.

It is difficult to predict when the whales will be involved in the market. They have their own trading goals and what might seem like a high buy rate to normal traders may seem like little to them.

Whale involvement in the market can indicate the mood of a certain cryptocurrency. If whales are buying, it could mean they believe the market will go up. If they sell, it could mean they believe the market will go down.

You must remember that whales often have a good amount of resources at their disposal and can see the market better than you. 

At the same time, whales can intentionally speculate and buy and sell large quantities to cause short-term swings and shake up the cryptocurrency market.

All you can do with whale investors is to react and consider their actions when trading cryptocurrencies.

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8. Market news 

As the power of the media is evident, it is not surprising that market news is a major factor that can affect the cryptocurrency market. 

In fact, market news is the number one thing to watch when it comes to cryptocurrency trading, a factor that can include anything on this list. 

News Drives Moods Among Crypto Investors; they can increase demand or cause panic.

News about political events can also prompt people to trade cryptocurrency. For example, if the US dollar is down, people can trade Bitcoin if there is a positive movement. 

Furthermore, if the economy is bad, investors could transfer more money into cryptocurrency. It simply looks for key indicators that the economy can be good or bad, such as employment rates and gross domestic product (GDP).

As stated above,  market news should be one of the main things you check out daily when trading cryptocurrency.

Also, let's not forget that media can be used to educate traders about cryptocurrencies and increase people's desire to own cryptocurrencies.

9. Competition

Competition is another factor that has a strong influence on the cryptocurrency market. When a new cryptocurrency appears on the scene - a cryptocurrency attempting to do something similar to existing ones - this can drive prices up.

There are many instances of cryptocurrencies that offer improved solutions to existing projects. For example,  Ethereum and EOS are both competing for smart contracts and dApp dominance.

Some cryptocurrencies now offer privacy solutions like Monero, Dash, and Zcash.

A new cryptocurrency may offer new features and be marketed better than what already exists, which could raise its price and undermine its rivals. If it turns out that one is better than another, people will likely switch to the alternative.

Indeed, how a coin is traded is crucial. Unfortunately, there are many undervalued coins with great potential that have not had a chance to make a name for themselves in the cryptocurrency industry. Some interesting coins are Polkadot, Enjin, and Fusion.

Speaking of new coins, let's not forget that initial coin offerings (ICOs) are constantly occurring due to low barriers to entry, so the competition may keep prices down.

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10. Hard forks

Even if you are a beginner, you may not be surprised to hear that hard forks affect the cryptocurrency market. A hard fork occurs when a blockchain is split in two, an event that is often triggered by an internal conflict between developers and miners.

Of course, it depends on how much drama there is about the hard work

; sometimes there is a lot and sometimes not. 

In most cases, the history before the fork is the same, but after the fork,  the two blockchains can go in different directions in the way they are developed.

However, not all hard forks are dramatic. Many continue with little drama if they develop. Dash and Litecoin are the result of hard work and haven't seen the same drama.

11. Adoption

Adoption is often seen as the single most important factor cryptocurrency needs to move forward and replace fiat currency.

It is no secret that Bitcoin is the most accepted and most popular cryptocurrency in terms of market capitalization. However, adoption is also happening with other cryptocurrencies and shouldn't be overlooked.

Adoption is also important when it comes to smart contracts and dApps, which represent completely different sectors. In fact,  dApps are more likely to be adopted sooner. And there are many dApps built on Ethereum!

In fact, blockchain technology is already being adopted in several sectors, besides finance, such as games, medicine, and music.

Smart contracts may take longer to adapt, but if they are employed in real-life settings by lawyers and other organizations, they could improve cryptocurrency prices.

Unsurprisingly, Ethereum, EOS, NEO, and many other cryptocurrencies are fighting for dominance, causing investors to wonder if Ethereum will continue to be the king of smart contracts in the cryptocurrency market.

12. Availability

 Availability is another factor that can affect the cryptocurrency industry. If a cryptocurrency is easy to obtain on an exchange, this will have a positive effect on the price, especially if the coin is listed on a popular exchange.

The more popular the exchange, the more attendees it gets.

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The same is also true if cryptocurrencies are accepted by CFD brokers, which can have a much broader reach within traders than cryptocurrency exchanges. Although cryptocurrency regulations are still a gray area, CFDs allow traders who cannot afford to buy real cryptocurrencies, especially Bitcoin, to enter the cryptocurrency market.

Bitcoin is, in fact, an underlying asset in exchange-traded funds, futures, and other products.

The availability of cryptocurrency wallets will also have a positive effect. If a new cryptocurrency becomes available on a popular wallet, its price will likely increase.

Additionally, the number of ATMs, retailers, and establishments accepting cryptocurrencies is critical to determining actual use and availability, which can drive up prices and uptake.

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13. Security Issues

Security issues are among the main factors affecting the cryptocurrency market.

Unfortunately,  hacking and fraud are still a problem for crypto investors. This, of course, is not a good thing to happen. 

Cryptocurrency is supposed to be safer than normal transactions and when that fails, people realize that the cryptocurrency market may not be as safe as imagined.

One of the biggest attacks of recent times was the infamous Ethereum DAO hack; when a hacker realized that he could continue to withdraw large amounts of money from the DAO (Decentralized Autonomous Organization).

While it wasn't necessarily an attack on Ethereum, it didn't help its image and resulted in Ethereum being forked into Ethereum and Ethereum Classic. This was done to reverse the hack and give people their tokens back. 

Note that Ethereum Classic uses the old blockchain where the hack has still occurred.

Potential security bugs can also be a problem because they could mean that something was not coded correctly and that attacks could occur in the future.

The hacks on exchanges were also devastating and didn't help the image of cryptocurrencies. The biggest Bitcoin hack ever was the mounted attack. Gox exchange.

Note that hacks often cause prices to drop. One example is the infamous Binance Exchange attack that crashed PC 10.8.

Last but not least, the use of coins for illicit activities also has a negative effect and darkens the cryptocurrency market.

14. Market sentiment

Market sentiment is another important factor that can help a coin establish dominance. Note that market sentiment refers to the general attitude of investors towards an asset or a market.

It is also the psychology of the crowd surrounding a given investment.

While some coins have caused controversy around the world, there are many coins with promising features that are becoming increasingly popular, with prices on the rise despite the ongoing pandemic.

Take Tezos, for example. Despite the numerous feuds surrounding this innovative coin, Tezos has managed to win investor confidence with its democratic governance and is now one of the fastest-growing cryptocurrencies on the market.

15. Financial crises

Just like other investments, the cryptocurrency market is affected by financial crises, health problems, and social turmoil. Indeed, economic crises have a major impact on cryptocurrency prices. If traditional financial systems collapse, people can panic and invest in alternative assets. The more people invest in cryptocurrency, the greater its capitalization.

When investors lose faith not just in fiat money but in governments, many may turn to the cryptocurrency market, which will drive prices up further. Some even argue that despite the high levels of volatility in the cryptocurrency industry, cryptocurrencies could outperform gold as a safe-haven asset.

KEY POINTS

If you remember anything from this article, make it these key points:

Many factors can affect the price of a cryptocurrency. By understanding what they are, you can trade more effectively.

The price of cryptocurrencies is influenced by factors such as the supply of the cryptocurrency and the market demand for it.

Always keep an eye on crypto news. This is where you will hear about events that can affect cryptocurrency prices.

Technical factors along with market sentiment are unique elements of cryptocurrency. They can point out how some cryptocurrencies work and compare them to their competitors, which can affect prices.

Availability and adoption are by far the main factors influencing the cryptocurrency market. The more people use cryptocurrency, the more valuable it will become.

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