What affects the prices of cryptocurrencies? Why a cryptocurrency increases in value ? Cryptocurrencies are not like stocks or commodities. Their prices are not based on earnings reports or geopolitical trends.
The value of a cryptocurrency can vary greatly. It may, for example, be on the rise for a short period, following advertisements or a fashion effect. just look at the number of transactions on online platforms to notice these sudden movements.
The cryptocurrency market volatility is a well-known parameter in operating rooms But for anyone who wants to get into cryptocurrency trading, there are other determining factors to consider in order to find promising cryptocurrencies and make positive trades.
We will explore the factors leading ups and downs value of digital currencies such as Bitcoin, Ethereum and Litecoin.
What is cryptocurrency?
before seeing how a digital currency increases in value It is recommended to make a small reminder of the definition of a cryptocurrency, not everyone is familiar with this new technology and the commercial possibilities it offers.
They are called crypto assets, or more commonly cryptocurrencies. Cryptocurrencies are digital tokens or virtual tokens that use the cryptography for security.
They are decentralized, which means that they are not subject to the control of any government or financial institution.
News can affect the value of a cryptocurrency
Cryptocurrencies and the trading world are highly sensitive to current events. Positive news about Bitcoin, Ethereum, or another altcoin can lead to a sudden influx of buyers looking to cash in on the hype, driving prices higher. On the other hand, negative news can have the same effect in the opposite direction, leading to liquidation and lower prices.
Take the example ofElon Musk, one of the most influential people in the world. The head of Tesla, a company that revolutionized the auto industry, is a lifelong crypto enthusiast.
Also when he announced on his Twitter account invest in bitcointhe value of the latter increased by 8% in one day!
Reliable technology gives value to a crypto
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units. Security is a pillar of the blockchain technology on which cryptocurrencies are based. It is this security that gives investors confidence and allows them to find new uses for cryptocurrencies, increasing their value.
Let’s continue with a current example:
More and more public services such as hospitals are victims of hacking. A malicious person may have access to sensitive data about her health. Imagine a technology where your medical records are stored on a blockchain where your sensitive medical information is secure, encrypted and private.
East innovative technology it will certainly give value to the cryptocurrency that will support this project.
The trust factor affects the value of cryptocurrencies
When considering any type of investment, trust is always an important factor. This is especially true when it comes to cryptocurrencies, which is a relatively new asset class with many unknowns and unique risks.
When it comes to trust a cryptocurrency, research will be your best friend. Before investing money, you should take the time to learn about currency.
- What is the purpose of the coin?
- How is the team behind the project?
- How does the currency work?
By doing your research, you will be able to better understand cryptocurrency and whether or not you can trust it and, more importantly, ensure that this investment is likely to increase in value.
One user attracts another
when you are considering invest in a cryptocurrency, it is important to consider the number of users and the general popularity of the token. The more users a digital currency has, the safer investors are and the more likely it is that the currency will appreciate in value.
Banks, investment funds, Institutions
When institutional investors are interested in a cryptocurrency, its value is often significantly affected.
Investment funds, banks and insurance companies have, in fact, huge financial means that can increase the value of the cryptocurrency they buy.
a rare token
While most of fiat currencies are not considered rare, some economists believe that bitcoin may one day become rare due to its limited resources. There will only be 21 million bitcoins in circulation, and 18 million of them have already been mined.
As the demand for bitcoins grows, the relative scarcity of the remaining bitcoins could cause their price to rise.
To the question “why does the value of a cryptocurrency increase?”, we have seen that the answer contains several elements. This topic is certainly broad and complex.
A simple tweet or the presence of institutional investors can influence the price of the token.
One of the things to remember about cryptocurrencies is their high volatility. Your price can be affected by a variety of external factors, such as news or government regulations.