It’s been more than a decade now since the launch of the Bitcoin blockchain and with it the start of the blockchain phenomenon. An entire ecosystem and industry have spouted off the basic idea of a blockchain and the leading offshoot of the blockchain phenomenon is speculation i.e., cryptocurrency trading.
It is easy to see why speculation on the price of cryptocurrency assets has become such a big thing. The prices of these assets are volatile oscillating wildly in very short periods of time. For long term investors, this is not so much a good thing but it is especially good if you’re a trader. To be a good trader it is mandatory to understand why the price of bitcoin moves and what determines the direction in which it moves, which can help us choose a good trading strategy. In this article we will look at exactly that.
The price of Bitcoin
It may seem odd to list the price of bitcoin as a factor determining the price of cryptocurrency but stick with us for a second here. Bitcoin is the granddaddy of the cryptocurrency market. It is the oldest and the most liquid asset. It is also the gateway to the entire market not to mention that it is the most popular asset.
The value of most assets is based on the value of bitcoin. If bitcoin moves, most of these assets move with it. The charts also confirm this assertion. More often than not when bitcoin made sudden wild swings either up or down, the overall market moved with it in the same direction.
Law of economics
The demand and supply metrics of an asset play a big role when determining the value of that asset. The easier it is to mine a coin or token into the market the more of that asset will be in the market faster than the demand could absorb it which devalues the asset.
The converse is also true. When the mining difficulty of say bitcoin hikes, it becomes harder to mine a single coin and the value of bitcoin is raised. Despite the forward-thinking of the blockchain field, the assets themselves are still obedient to the age-old law of economics.
It is hard to sidestep this point as it has often shown its importance now and again when determining the value of any asset. The negativity or positivity of the news about any coin can either boost its perceived value or break it down. Media is entrenched in our society and when good news is reported, this is interpreted as a good indicator by traders.
The reverse is also just as true. Back in 2017 when bitcoin is rallying to its all-time highs, the media coverage was at its highest which may have attracted outsiders to want to invest in the coin helping push it to its highs.
Laws and Regulations
Cryptocurrency assets make up what is considered a new asset class and this means that there are not in place any laws that govern the marketplace activity. Over time, some governments have put up some placeholder laws to ensure some form of protection but not as robust as those of other traditional assets.
To that end, lawmakers are constantly experimenting and changing laws that affect these assets differently. Laws such as those legalizing these assets are positive news which often gives a boost to the entire market. This factor is closely tied in with the factor on media influence as when laws are changed, the media is first to write about it.
In conclusion, these are not the only factors that affect the price of an asset. We may have sidelined some important factors such as the importance of community but these are arguably the main factors to consider in case you’re looking for signals to help your decision when crypto trading. However, as new asset class, more of these factors are still being discovered by researchers and the traders themselves.
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