What Affects The Cryptocurrency Market?

Last Updated October 15th 2019
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Cryptocurrency doesn’t move in the same way as stocks and forex, though there are some important similarities.

There is a range of other things thrown into the mix that also affect the price, many of which are a lot more technical.

Another key thing to note is that when Bitcoin enters a downtrend, so do many others, particularly those similar in functionality.

Or sometimes when Bitcoin loses value, traders move to other cryptocurrencies and they go up.

The same can also be said for Ethereum and similar cryptocurrencies.

An important thing to remember is that the majority of the factors mentioned below cannot always be determined

The only way to really estimate what direction a cryptocurrency may move in is by applying technical analysis.

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Updates to the code

cryptocurrency code

Cryptocurrencies are constantly changing with new elements being added frequently. They are added to improve the performance of the cryptocurrency.

For example, Bitcoin being updated to add the lightning network is a huge change or Ethereum transitioning from a Proof of Work algorithm to Proof of Stake.

Announcements can affect the price of a cryptocurrency, but what is most effective is when those changes are finally implemented and useable.

If announced changes are not possible or do not work, this can result in investors losing faith in the project.

Bear in mind, if announcements and changes were already expected, it might not affect the price so much.

Supply and demand

This is a simple thing to look out for and affects anything you trade, whether that be stocks or forex.

If something is in short supply, its value will increase but if there is an abundance of something, the values is likely to be low.

Mining is also important here because if a cryptocurrency has a limited supply it will also affect the supply and demand.

Traders should look at volume, volume often precedes price movements.

Cryptocurrencies may also go through a halving which is where when they reach a certain number of blocks or time that has passed, the block reward for each block mined in reduced.

Scandals involving developers

crypto developers, cryptocurrency market

There is always drama in the cryptocurrency industry and plenty of mudslinging between projects.

One of the most well-known examples is with IOTA.

The chairman said an independent security researcher ‘needed a slap’ after criticising the project.

This then resulted in the University College London removing their support for the project. This then had a negative impact on IOTA with investors losing confidence.

Conversely, developers who are very busy promoting their project can have a positive effect on their cryptocurrency.

Justin Sun of Tron is one such example, though it should be mentioned that some of his announcements are controversial.

Regulation

Regulation is always changing, some see it as a good thing while others don’t.

Regulation is better for traders because it will mean that their funds are more secure and less likely exchanges or ICOs will simply disappear with it.

The USA and China are two of the biggest players when it comes to regulation.

The USA because most countries will follow their policies and China because there are many Chinese involved in cryptocurrency trading, and, of course, they are the two of the largest economies in the world.

While China has notably been stricter on cryptocurrencies, the USA is more concerned if cryptocurrencies are considered securities or commodities. 

Effectively the USA is trying to bend cryptocurrency to fit into the regulation they already have instead of setting up new regulations.

As time goes by, it is likely that regulation will become a larger factor. When this will happen is yet to be seen.

It is possible that when Facebook’s Libra is launched regulation may come into play as it will give access to cryptocurrency to millions of people.

Utility

By this, we mean how you can use the cryptocurrency aside from paying for things.

Two great examples of a utility token are Binance Coin and LEO, which can be used on the Binance exchange and Bitfinex exchange to get a discount.

Utility can also mean other things as well, such as practical use. One example could be stablecoins, such as Tether, which was designed to be tied to the US dollar.

Traders can use Tether to hedge their trade when the market is too volatile to trade.

Whale investors

investing in cryptocurrency, cryptocurrency market

Whale investors are investors with a very large amount of capital. Тhey can either be individuals or, more likely, large institutions.

They can affect the market either by investing a large sum in the market or selling a large amount.

It is hard to predict when whales will get involved in the market. 

They have their own trading goals and what might seem like a high rate to buy at for normal traders may seem like not much to them.

Whale involvement in the markets can signify the mood on a certain cryptocurrency. If they are buying, it may signify that they believe the market will go up.

If they sell, it may mean that they believe the market will go down.

You have to remember that whales often have a good deal of resources at their disposal and can see the market better than you.

All you can do with whale investors is react to them. 

Market news

market news, cryptocurrency market

Market news is the number one thing to watch when it comes to cryptocurrency trading and can include anything in this list.

Political events can push people to trade cryptocurrency. For example, if the US dollar is down, people may trade Bitcoin where there is positive movement. 

Also if the economy is bad they may move more money into cryptocurrency. Look out for key indicators that the economy may be bad or good, such as employment and GDP.

Market news should be one of the primary things you check daily when trading cryptocurrency.

Competition

When a new cryptocurrency appears on the scene that attempts to do something similar to ones that already exist can drive up the price.

There are plenty of instances of cryptocurrencies offering similar solutions. For example, Ethereum and EOS are both competing for smart contracts and dApps.

There are also a few now offering privacy solutions like Monero, Dash and Zcash.

A new cryptocurrency may offer new features that are marketed as better than what already exists which increases its price and lowers its rivals.

If it is found out to be true that one is better than another, people will likely move over to the alternative.

Hard forks

bitcoin hard fork

A hard fork is when a blockchain is split into two. In most cases, their history before the fork is the same, but after the fork, they may go in different directions in how they are developed.

It does depend on how much drama there is in relation to the hard fork, sometimes there is a lot and sometimes there isn’t.

One of the biggest examples is Bitcoin and Bitcoin Cash, and then Bitcoin Cash and Bitcoin SV, but even before that Ethereum and Ethereum Classic.

Not all hard forks are dramatic. Many go on with little drama if they develop themselves. Dash and Litecoin are the results of hard forks and have not seen the same drama.

Adoption

Adoption is seen as the most important thing cryptocurrency needs to move to being accepted as a replacement for fiat currency.

Bitcoin is the most accepted, however, adoption is happening with other cryptocurrencies as well and should not be overlooked.

Adoption is also important in regards to smart contracts and dApps as well, which represent entirely different industries.

dApps are more likely to be adopted sooner and there are plenty of dApps built on top of Ethereum.

Smart contracts may take longer to be adopted, but if they are adopted by lawyers and other organisations, they could improve the price of cryptocurrencies that use them.

Availability

If a cryptocurrency is easy to get on an exchange then it will have a positive effect on the price, especially if it is listed on a popular exchange.

This is also true if cryptocurrencies are accepted for CFD brokers, which have a much wider reach with traders than just cryptocurrency exchanges

Availability on cryptocurrency wallets will have a positive effect as well. If a new cryptocurrency becomes available on a popular wallet, its price will likely rise.

Security problems

cryptocurrency security problems

This, of course, is not a good thing to happen. 

Cryptocurrency is supposed to be more secure than regular transactions and when this fails people can believe that it might not be as secure as imagined.

One of the biggest attacks of recent times was the Ethereum DAO hack. 

This was where a hacker realised they could keep withdrawing from the DAO (Decentralised Autonomous Organisation).

While it wasn’t necessarily an attack on Ethereum, it didn’t help its image and led to the Ethereum being forked into Ethereum and Ethereum Classic.

This was done to reverse the hack and give people back their tokens. Ethereum Classic uses the old blockchain where the hack still occurred.

Potential security bugs can also be a problem as well as they may signify that something wasn’t coded properly and that hacks may happen in the future.

Hacks on exchanges have also been devastating and not helped the image of cryptocurrencies.

Key points

If you remember anything from this article, make it these key points.

  • There are many things that can affect the price of a cryptocurrency. By understanding what they are, you can trade more effectively.
  • Always keep an eye on the news. This is where you will hear about most events which can affect cryptocurrency prices.
  • Technical factors are a unique element to cryptocurrency. How they work and compare with the rivals can affect their price.
  • Availability and adoption are by far the biggest factors. The more people use cryptocurrency, the more valuable it will become.

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