If you’re thinking about or are already invested in cryptocurrency you may be trying to figure out what aspects affect the price of a particular coin or token. Having some understanding of what drives or prevents a cryptocurrency from going to the moon is vital to see good returns on your portfolio.
This knowledge helps you buy and sell at the right time getting the best returns possible. If you are planning to invest in crypto check out Financer.com in the first instance. They offer good financial advice and have a comprehensive crypto section.
So, what aspects affect the price?
Investor Confidence
It is important to understand that investor confidence is key to the price of cryptocurrency just like forex and other financial markets. When times are good prices are higher, and random world events can influence crypto markets driving prices up and down.
In general, the more turmoil that seems to be in the world, the prices tend to fall. If you think about how things are as we hit the last quarter of 2022 and compare them to November 2021 when many currencies saw all-time highs, you’ll see why we are in a bear market. Just check the price chart of a few cryptocurrencies and you can really see the difference.
Institutions
Big institutions such as BlackRock and Bitcoin whales have the power to heavily influence the price. Large sell-or-buy trades can make considerable differences in what is happening in the cryptocurrency world.
This is not new as large institutions that had enough clout were making differences in the stock market in the 1920s. In the 1920s, Richard Wyckoff identified a trend where stock market prices were driven into certain price zones allowing institutions to either buy or sell more favorably.
The idea of this price manipulation is to milk the retain and investor money into their pockets. Wyckoff spotted four institutional price patterns of accumulation, distribution, reaccumulation, and redistribution and this is known today as the Wyckoff method.
During these patterns, prices will be manipulated to scare investors into selling and buying to the benefit of the institutions. The good news is that an experienced investors can spot this pattern and buy or sell to their advantage.
World Events
World events have a massive impact on cryptocurrency.
Here are a few examples:
• Inflation
– Inflation tends to lead to higher interest rates. In this situation, secure, debt-based securities are more valuable. Cryptocurrency investment tends to happen in periods of cheap money and high liquidity. Inflation drives up the cost of living and as such investor confidence generally is shaken, causing the price of most coins and tokens to drop.
• Legal Action
– Right now (October 2022) XRP is locked in a legal battle with the Securities and Exchange Commission (SEC). The thrust of the case is that the SEC has stated that Ripple (XRP) is classed as security that changes tax and other regulations that XRP investors may find unfavorable.
Ripple is accused of negligence in terms of not advising investors that the token is a security. The case has been fought by Ripple and it appears that they are winning. The battle has greatly affected the price of XRP to the detriment of the token, however, and this again rocks the confidence of investors.
• Regulation
– The Federal Reserve (The Fed), European Union (EU), and governments around the world bring in regulations that often impact the price of cryptocurrencies. The regulations can be specific to crypto, and often regulations mean that the price drops.
It is important to understand that most governments tend not to like crypto for a variety of reasons, especially as Bitcoin was created to be superior to the debt-based financial system and fiat currency. One aspect that will impact the market considerably is the rollout of Central Bank Digital Currency (CBDC).
The idea is that this will replace cash in its entirety running on a blockchain. Should this happen, currency and people’s lives to a large extent could be controlled by governments and central banks, and have a profound impact on cryptocurrency markets.
• War and Pandemics
– Whatever your views are of the covid – 19 pandemic and the related restrictions, and wars such as the Russia-Ukraine war, there can be no denying the impact on cryptocurrency is profound. When covid-19 stimulus cheques started to be cashed many invested in cryptocurrency and the price of crypto generally increased hitting all-time highs in November 2021.
Conversely, the Russia-Ukraine war which has impacted the price of food, energy, and inflation, has shaken investor confidence and by extension crypto price.
• Global Powers
– United Nations, World Health Organisation, The World Economic Forum, and others all drive the price of crypto up and down. To give you an example, the UN’s Sustainable Development Policy, among other reports and policies, often criticizes Bitcoin miners for ‘intense electricity usage’.
This has been disproven but the narrative is picked up by the mainstream media and the result is a detrimental effect on price. Crypto Reputation The reputation of a specific coin or token as you’d expect influences price.
Upgrades and other positive aspects can cause price spikes, while hacks, negative reporting, and wrongdoing damage the reputation of the currency causing the price to fall. Given that crypto is determined by investor sentiment to a large degree, a celebrity promotion has been known to influence price in an upward direction.
This has led to investor anger when the price came down when the dust settled, and indeed a price drop as that anger translated into negative investor sentiment.
Bitcoin
Bitcoin in itself is a heavy influence on nearly every other cryptocurrency. In essence, when BTC pumps the market pumps. When it dumps, the market dumps. There are exceptions, but generally speaking, that is the pattern to watch.
Final Thoughts
If you can get your head around all of the aspects that influence cryptocurrency you can stay ahead of the curve as much as humanly possible and see your investments go to the moon.
It is worth your while learning technical analysis and looking at the concepts here in more depth, so you can make informed investments and play the markets to your advantage. Good luck.
