The price of cryptocurrency has been on a roller coaster ride over the past few years, hitting highs of over $1,000 and bottoming out at less than $200 in mid-2017.The rapid fluctuations in price and the resulting headlines have made cryptocurrency both thrilling and terrifying to investors looking to make money off the crypto craze.But what’s behind the madness? We’ve got you covered with everything you need to know about how cryptocurrency prices are determined, as well as what’s contributing to their volatility.
Supply and Demand
It’s clear that supply and demand have an impact on cryptocurrency prices—if there are more buyers than sellers, prices rise; if there are more sellers than buyers, prices fall.
But for cryptocurrencies in particular, factors like public interest and adoption play a big role.
If people hear about a new cryptocurrency gaining popularity or just want to try out something new, they might buy it—and while they could lose money if they were to immediately resell it at a lower price, their decision to buy it could be one reason why its price increases.
If people stop talking about it or lose interest (or think its price has already risen too high), demand falls and so does its price.
The same can happen with news events, even ones involving unrelated companies: For example, after rumors began circulating about Amazon accepting Bitcoin payments, investors may have bought into Bitcoin as a way to profit from those rumors—which would then make them more likely to spread further speculation.
Once enough investors believe in these types of news-related events, companies can use them to successfully manipulate cryptocurrency prices.
When people try to predict cryptocurrency prices, they often look at external factors: government regulation, market liquidity, other technological developments.
However, there’s an additional factor that plays a role in determining cryptocurrency prices: media coverage. During periods of extensive media coverage, cryptocurrency prices tend to increase.
When there’s less attention from mainstream media outlets, investors may become more interested in keeping their assets on exchanges rather than holding them for longer periods—this drives down value as demand for cryptocurrencies goes down.
To help you stay informed about cryptocurrency prices, here are some tips and tricks.
First, it’s important to keep up with recent events; whether it’s reading trade news or business forums, having an understanding of what affects crypto markets can help you make better decisions moving forward.
Second, you should set up automated alerts; whether these are email notifications or text-message reminders sent throughout your day, they allow you to react quickly when things change in your industry.
Finally, if your goal is to diversify your portfolio with cryptocurrencies like Bitcoin or Ethereum then be sure to only invest what you can afford.
It’s impossible to say for sure what drives cryptocurrency prices, but some believe that market manipulation is a big factor.
The biggest clue pointing to potential manipulation was in 2013 when Mt. Gox, once one of the most prominent bitcoin exchanges, was forced to halt trading for several days and deal with serious technical issues—problems that many thought were linked to malleable (and possibly fake) currency balances.
It’s possible that investors looking to drive up prices artificially created large buy orders on Mt. Gox through automated software called bots, then purposefully delayed confirmation by flooding its servers with bogus requests—so-called denial-of-service attacks.
While no credible evidence has ever been made public suggesting fraud was at play, it’s still an open question among traders and those who track cryptocurrency price movements.
What we do know: Buying or selling crypto does not necessarily reflect its value; it merely reflects demand for it at any given time.
As such, a lot can happen that may not be immediately obvious from monitoring exchange rates alone… particularly during times of peak hype like recent weeks.
And, you never really know when someone else may bring down your investment.
One way to stay safe is only invest what you’re willing to lose! Overall, a solid understanding of how cryptocurrencies work and their market dynamics will give you better insight into their behavior.
In March, governments in China and South Korea announced plans to crack down on cryptocurrency trading.
And though Russia has signaled an openness to digital currencies, government officials have issued warnings about potential risks. The SEC has also launched a probe into companies that change their names and concepts in order to attract investors in initial coin offerings.
All of these activities have affected cryptocurrency prices over time.
Still, countries like Japan have taken a more accepting approach—that’s good news for both investors and businesses looking to accept cryptocurrencies as payments.
As nations continue to work out how they will regulate (or not) crypto-businesses, it will be interesting to see how markets respond.
But for now, keep in mind: even if you do buy Bitcoin or other cryptocurrencies today, there’s no guarantee its value tomorrow.
One thing that will affect cryptocurrency prices is an increase or decrease in global economic activity.
If people are feeling confident, they’ll be more willing to invest and risk money—and cryptocurrency tends to follow suit with other investments.
That’s because it’s seen as a safe haven, like gold or silver (but new and potentially very profitable).
In general, when an economy grows and has positive prospects, it tends to push up stock prices; conversely, if people feel pessimistic about their country’s future—like during a recession—they tend to turn more conservative with their money.
This means less investment and less spending, which naturally hits stocks hard too.
When investors feel stable, cryptocurrencies benefit from that sentiment also.
For example, after a major financial crisis such as the one experienced in 2008–2009, digital currency prices soared worldwide for several years following those events because investors flocked to them for security in uncertain times.
So, there are many factors that could affect cryptocurrency pricing over time.