Alterations in the balance of supply and demand are the main reason for the rate fluctuations of any crypto asset. However, this is a generalized explanation, and to better comprehend the reasons for these changes, as well as to make any predictions for the future, it is necessary to analyze numerous factors. The latter can be divided into intra-market as well as external factors.
The first group includes the following factors:
- Influence on the price by many traders, large players the so-called “whales”, which is particularly noticeable. At the same time, there is a stable correlation, meaning the greater the capitalization of the crypto asset is the less is the influence of big players, and vice versa.
- Cross-influence of exchange rates of different currencies. For example, often when the price of Bitcoin rises sharply, the rates of most altcoins fall. This happens because many market participants tend to “jump in” to the rising Bitcoin, and thus there is an outflow of funds to the first cryptocurrency. An inverse correlation between Bitcoin fees and the rate of its most liquid fork, Bitcoin Cash, often can be noticed.
From the above, it follows that when analyzing a cryptocurrency, you have to pay attention to general market trends, as well as the situation when cryptocurrencies compete and interrelate. For instance, it often happens that the resounding success of the ICO of some ERC20 token affects Ethereum. On the other hand, the growth of ETH encourages many investors to pay attention to its “stubborn twin” Ethereum Classic (ETC).
External factors can also have a noteworthy impact on the cryptocurrency rate. We will highlight some of them below:
- Reduced confidence in the global financial system and national currencies. In particular, the devaluation of national currencies often leads to increased demand for Bitcoin, which more and more people begin to perceive as a means of preserving value.
- Tighter regulation of the economy, increased tax pressure on business, questionable measures of national banks (for example, demonetization of the Indian rupee, which caused an acute shortage of cash), decisions of international organizations aimed at combating money laundering through offshore companies, etc. All of these, in one way or another, serve as a factor in increasing demand for crypto-assets.
- Legislative changes in countries with a large domestic cryptocurrency market. Namely, the legalization of cryptocurrencies in Japan, stricter regulation of exchanges in South Korea, etc.
- MEDIA. In its time, the crypto community was stunned by criticism from JPMorgan Chase CEO Jamie Dimon, which had a negative impact on Bitcoin in the short term. On the other hand, sometimes statements of prominent personalities can have a positive effect.
- Individual crypto assets and the market as a whole may react positively to announcements about new assets being added to exchanges (e.g., Bitcoin futures on CME, LTC listing on Coinbase, etc.) or about interest in virtual coins from large financial conglomerates like Goldman Sachs. On the other hand, the market may be considerably shaken by news about hacks of exchanges or vulnerabilities in sought-after cryptocurrencies, etc.
- News of global politics. In particular, after the Brexit victory was announced, one could see an increase in demand for digital gold.
At the same time, we should not forget that some news is created with the intention of purposefully affecting crypto rates. Many blame the Bitcoin Cash project team for carrying out carefully coordinated media attacks on Bitcoin.
It is very important that crypto investors’ attitude to news is balanced and critical. Priority should be given to time-tested, reputable publications that link to the primary source (official blog post, press release, etc.).
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