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Reasons and How Cryptocurrency Prices Change

By Staff Reporter , Feb 17, 2020 10:30 AM EST
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Cryptocurrency is one of the Millennium's most profound inventions. It is exceptionally profitable. In fact, investing in the hottest cryptocurrency has made lots of individuals all over the world amass fruitful gains. However, exchanges using crypto are often unregulated and the markets are terribly volatile. Those are the risks; thus it pays to be knowledgeable about all factors concerning digital financial mediums.

One of the things you have to be aware of is the constantly changing price of cryptocurrencies plus the factors that influence such events. Read on and become informed.

1. Accessibility of liquid assets to companies and markets

Liquidating assets in digital financial mediums refers to trading crypto for a fiat currency (national currency). The amount you will get for liquidating your assets though will always be based on its availability on the exchange and the market.

Keep an eye out for order books on every exchange you follow. The order book refers to a selection of real-time trading which happens whenever a trader establishes a price that they will sell or purchase an asset on. Plenty of trades happen every second in the crypto world, 24/7. Traders will be selling and purchasing prices they're taking risks for thus this leads to price fluctuations day in and day out.

In addition, if liquidity has a low rate, then order books won't be as thick, trading volume decreases and crypto currencies will change.

2. Accessibility of crypto on currency exchanges

As a crypto investor, keeping track of the market and reviewing a real-time price graph on digital financial mediums is a part of your life. Cryptocurrency traders and investors frequent platforms like GDAX, Coinbase and Binance for trading digital currencies. When an exchange draws plenty of people, it leads to more investors and traders discovering the exchange, thus improving its value. This leads to once again, a change in crypto pricing.

3. The media impact

The pricing of crypto assets is influenced mainly by aspects that originate from the markets. However, there are instances wherein the media can also have a great impact on price fluctuations.

For example, if a specific cryptocurrency becomes popular in the mainstream, this can lead to a boost in the currency's price since plenty of traders will be purchasing that particular token. Likewise, when a cryptocurrency suddenly acquires an unpleasant status in mainstream media, traders will cash out quickly so they won't lose money as soon as the price of the currency goes down.

4. Competition among cryptocurrencies

Today, Bitcoin is the most well-known among digital financial mediums. Since its boom, many tokens have emerged. Popular tokens now include Litecoin, Ether, Bitcoin Cash and Dogecoin. Due to the influx of cryptocurrencies both old and new, the competition between tokens actually regulates the price and keeps everything down. The popularity of Bitcoin gives the coin that profound edge to remain above its competition.

5. The arbitrage factor

Arbitrage indicates the synchronized purchase and selling of an asset in order to acquire profits from price imbalance. For instance, while checking out exchanges, you are encouraged to take advantage of a lower-priced Litecoin at one exchange. You purchase the Litecoin at that specific low price, withdraw the token and plan on selling it on other exchanges at a higher mark-up.

Then again, moving assets or currency all over exchanges can be valueless since before traders can even make their move, a bot might instantly swoop down and call it a deal. The price of the coin can shift as well during the exchange even before you can sell your token.

The differences in an exchange makes it a challenge for traders to arbitrage. Thus, this leads to prices in the market to remain at an extended period of time compared to more resourceful markets. However, this is not conclusive since the presence of bots can influence arbitrage.

6. Rules and legal issues

Due to the quick success of cryptocurrencies, this has led to regulators constantly arguing how to categorize these digital financial mediums. The SEC or Securities and Exchange Commission refers to crypto as securities while the CFTC or the U.S. Commodity Futures Trading Commission categorizes it as a commodity.

In spite of a boost in market capitalizations, there is still confusion on who is going to establish laws for cryptocurrencies. Moreover, financial products that utilize cryptocurrency as a principal asset are on the rise. One example are ETFs or exchange traded funds.

This event can influence the price of crypto in a few ways. For one, it can decrease instability in prices by letting investors who deem futures from cryptocurrency rate too low or too high to make use of their capitals and produce bets that the costs of the cryptocurrency will go the other way.

Secondly, for investors who cannot get actual bitcoins, they will be provided access on it and this leads to an increase in demand, thereby affecting crypto prices.

7. Supply and demand

One of the most applicable principle of free market economy, which is supply and demand, can have a major impact in the price of crypto. This is due to the fact that if more investors are willing to purchase tokens and others have plans to sell them, naturally the price of a specific cryptocurrency will increase.

8. Inflation of the fiat

Whenever national currencies like the US dollar gets inflated, its price also increases and its purchasing power declines. This leads to a boost for cryptocurrencies. Traders and investors will be able to get more USD with every cryptocurrency.

The revolution of the currency is led by crypto and today most countries identify it as an essential component of their monetary structures. More and more individuals are using it as a means to secure and send payments or make money.

Remember that investing in cryptocurrency has its risks. Even the most professional among traders lose profits due to the ever-changing market. Thus, it's crucial that you acquire the right kind of knowledge in order to boost your gains.

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