Can we anticipate cryptocurrency movements?
It’s now been over a decade since Bitcoin made history as the first digital currency, and so much has changed in such a short time. A whole industry has sprouted up, complete with exchanges, brokerages, trading platforms and even a dedicated news sphere. What started as a single coin has now evolved into a veritable marketplace with thousands of cryptocurrencies and digital tokens available to trade at any time of day or night. Despite peaking in January 2018, crypto is still currently gaining in popularity, with more and more new actors entering the market every day.
But for many ordinary folks, cryptocurrencies are a complete mystery. It’s unclear to them what determines their value, and predicting future price movements seems akin to a dark art. Therefore, what are the factors that impact the value of a given crypto coin and how can you anticipate where the price is headed?
Well, cryptocurrency prices are predominantly determined by how valuable consumers consider them. Nevertheless, there are also certain objective phenomena that definitely affect their worth. So, without further ado, let’s take a look at what factors impact crypto and what drives prices up or down.
Supply and demand
It might seem like Economics 101, but supply and demand really do play a massive role in the price of a given crypto coin. In fact, in the absence of currency boards and central banks, crypto prices are predominantly influenced by the asset’s availability versus demand for it. The harder it is to obtain, the higher the price will be and vice versa.
Let’s look at the example of Bitcoin and XRP (Ripple). BTC’s supply is capped at 21 million coins, with less than 4 million left to be mined. This is one of the reasons Bitcoin was able to rise so prolifically: demand went through the roof, while supply remained the same. XRP, on the other hand, has a cap at 100 billion. At the time of writing, almost 43 billion are in circulation, leaving a lot of coins left. That is one explanation as to why XRP’s value hasn’t gone over $3.
Another factor that influences cryptocurrency prices is how hard it is to mine the coin in question. The term mining is used to describe the act of validating transactions and adding them to the blockchain. Bitcoin, for example, is extremely difficult to mine at present, meaning it isn’t as profitable as it used to be. There are already several mining pools that are dedicated to mining the remaining bitcoin and the more miners there are, the more difficult it is to mine for yourself, thus pushing the price of BTC higher.
Luckily, changes in mining difficulty are largely predictable. As we have seen, mining will become harder as the number of remaining coins shrinks. It is, by its nature, a very gradual process and it is highly unlikely that a cryptocurrency will suddenly become significantly more difficult to mine overnight.
Politics and regulation
Cryptocurrency regulation varies greatly from country to country. Some governments are so welcoming of crypto that it has even been deemed legal tender. Others, however, have gone as far as to ban it outright. As more countries begin to look at how to regulate cryptocurrencies, the number of transactions could be affected. If a government takes an overly restrictive stance, it could negatively impact the price of a coin. Conversely, with better regulation, more people might be encouraged to adopt crypto.
Another interesting dynamic we’re seeing nowadays is cryptocurrency emerging as a new type of haven asset. Many ordinary people from countries in crisis, such as Venezuela, are turning to Bitcoin as a way of protecting their savings from the ravages of hyperinflation. Thus, political and economic instability could soon become predictors of cryptocurrency price rises.
All the most popular cryptocurrencies have some sort of practical application. If a coin serves no purpose, it will generally tend to have a lower price. Bitcoin’s purpose is to be a peer-to-peer cashless system that could make digital money a reality for the masses. Ethereum allows people to create their own decentralised apps and conclude, execute and manage smart contracts. Meanwhile, Zcash is one of the only coins that allows users to retain total anonymity when making transactions. If a cryptocurrency has no practical use, this will probably be reflected in its price on the market.
When looking at altcoins as an investment, it’s crucial that you narrow your search down to those with real utility. Then, if there is a call for a function which your chosen coin can perform, you can be fairly sure the price will eventually rise. A good example is IOTA. Once the Internet of Things (IoT) becomes a reality, demand for this coin is almost certain to rise – and with it, its price. While it won’t help you predict short-term gains, it’s certainly a great barometer of long-term growth potential.
News and media
Both positive and negative news can greatly influence a coin’s price. For example, if the media starts reporting about a recent hack that occurred, it’s most likely going to drive prices down. On the other hand, covering the rising adoption of a coin can result in prices going up.
The only problem with using news to pre-empt trends is that you have to act fast. By the time you hear the information, the market will usually have already priced any impact in. It’s much better to combine trading with the news of more general sentimental analysis and solid technical analysis of the current market situation.
The long and the short of it?
As we have observed, cryptocurrency popularity (and value) is affected by numerous factors and it can be extremely tricky to anticipate where the market is headed with any degree of accuracy. There’s a reason crypto has such a reputation for volatility. To avoid missing out on your chance to profit, you need to be poised to strike when the time is right. A good place to start is by opening and funding a trading account on a reliable platform like StormGain. That way, you’ll be primed and ready to go the moment you see a trend emerging. Good luck and happy trading!