Very few technological innovations have roused as much interest and debate as cryptocurrencies have. Some laud cryptos as an awesome tool that will empower individuals while the nonbelievers keep thinking it’s a scam. Those decrying cryptocurrency mostly base their emotional debates on the volatile price action witnessed in the crypto market. The only way to be objective about cryptocurrencies is to first understand what influences crypto prices.
Here are the 3 prime factors that impact crypto prices:
The cryptocurrency boom of 2017 got governments worried that such an unprecedented growth could harm their fiat currencies. Governments across the world, therefore, moved in speed to try whatever they can to regulate the industry. Some countries like China acted harshly and swiftly by banning ICOs and Exchanges. Such bans set the cryptomarket on a downward spiral. Whenever any major government comes up with a law aimed at trying to regulate cryptocurrency, crypto prices get affected negatively.
Supply and demand
The good old supply and demand curve works just the same way in the crypto market. When the supply goes higher than the demand, crypto prices will fall and when the demand goes higher than the supply, crypto prices will rise. Mining costs and the complexity of mining bitcoin and other cryptocurrencies have increased significantly in the last few years. As long as this trend continues, crypto prices will continue rising.
Bad news has a way of causing the masses to panic while good news causes mass euphoria. Most of the cryptocurrency day traders react to such news, which causes crypto prices to oscillate. A good example is when China banned ICOs in their country back in 2017. This caused mass panic and Bitcoin price plunged from $5,000 to $3,000.
When you see the price of a cryptocurrency dropping, it is a good idea to investigate what caused the price action before making any decision. For instance, if the currency is reacting to some temporary bad news, it will most likely bounce back so you can safely continue holding your crypto. How long it takes for the crypto to bounce back largely depends on what caused the price action in the first place.