Cryptocurrency - a new phenomenon in the modern economy, at the initial stage of development. Therefore, we can observe high volatility in the price of digital assets., fluctuations from minimum to maximum and back.
One of the first questions, emerging from newcomers to the world of digital money, about that, what is the cryptocurrency secured by. Security can be conventionally understood as property, which can be obtained instead of the purchased asset. Stocks have real estate, working tools and production capacities of companies, and real money until the 70s was backed by gold. But today the situation has changed, provision in the form, eg, modern fiat money essentially has no gold. Fiat, but, is a legal and accepted means of payment. Therefore, their cost is set, regulated, guaranteed and stabilized by the state.
Cryptocurrencies – it is a digital asset, the course of which is determined by the confidence in it from the side of the holders. Crypto is still more of an investment vehicle, but not a means of payment, as is the case with fiat money. These points are key in the formation of the price of digital coins..
There are several factors to be aware of., which will help you make better decisions in matters of investing in a particular cryptocurrency.
- Supply and demand.
Price rise – it is always an increase in demand, price drop – respectively, drop in demand. Supply and demand are the most important factors, determining the price of any asset. Let's give an example: diamond prices are high, because they are made from rare naturally occurring diamonds. but, if the market were suddenly replenished with a large treasure of diamonds, then this would immediately lead to a fall in prices for them. This is how supply and demand work in the economy.. Limited emission, crypto coins increase their value, increasing the demand for this type of asset.
- Economic forces.
Using digital assets in real financial transactions, volumes of coins, average transaction rate. The higher the volumes on the exchange, the more often currency is used for financial transactions in the real world. This has a beneficial effect on the exchange rate of the coin..
- News background.
It is important to be aware of the news around crypto coins, which you have already bought or are considering for investment. for example, news about the ban of digital currency in any country or about the hacking of the exchange can have a negative impact on the value of the cryptocurrency. AND, on the contrary, news about, that a major retail store started accepting digital money, will lead to an increase in the rate. The more widespread coverage of a news event is (as negative, and positive), the more the course will change.
- Fear factor.
Billionaire Warren Buffett said: “Investors should be afraid, when others are greedy, but be greedy, when others are afraid ". There is always fear in the market, uncertainty and doubt. There are people, who buy any cryptocurrency during the period of its price growth, hoping for further recovery. And since the market is constantly adjusting, investor, overly emotional about price changes, may withdraw funds or make other fear-based decisions and regret it, when the market enters normal mode.
- Mutual influence.
Many cryptocurrencies naturally focus on Bitcoin, since it is the first digital currency. for example, when Bitcoin first began to experience its big boom in 2012 year, the value of Litecoin has grown with it, as people hoped, that the growth of the first will contribute to the growth of the rate of the second. To some extent, their hope was justified., but this may not work in the future, especially, that altcoins are developing and spreading very quickly.
- Rate of implementation.
One of the positive factors is its widespread use.. When large retail trading corporations announce their support for any cryptocurrency, this helps to increase the value of the currency for its owners and attracts interest in this currency, stimulating its acquisition by other investors. it, in turn, increases the value of such a currency, as retail stores and businesses start to accept cryptocurrency as a payment method.
Any exchange hacks, security failures or the closure of a major exchange can directly affect the value of cryptocurrencies in general.
- Organized pressure.
When there is a sharp fall or rise in the rate of cryptocoins, this does not indicate the increased interest of users in the coin, and about that, that a diaper or the so-called "bull" appeared on the exchange. There is also a special term - "bullish trend". The task of the pumper is to artificially inflate the course (pump in translation means "to inflate"). Pumper buys a certain cryptocurrency and creates the illusion of active growth of coins. Newbies start shopping too, to make money on the growth of the cryptocurrency rate, and the diaper at the peak of activity crashes the course, dumping: he gets rid of assets, as a result of which the price of coins collapses.
- Technological progress.
Cryptocurrency – this is a growing market, which is expanding in many industries outside of financial institutions. for example, legal contracts, can be stored on the blockchain for reliable validation. Any changes, included in the document, published publicly and authenticated, therefore there is no doubt about the authenticity of the document. Blockchain technology and tokens will change how these industries work, like real estate, health care, legal policy, media and startups. And this, in turn, will contribute to the spread of the use of digital currencies.
The formation of the cryptocurrency rate has a complex mechanism. For, to make money on cryptocurrency, it is necessary to take into account the above factors and analyze the situation in the digital money market.