Factors That Influence Crypto Prices

Cryptocurrencies prices have been a topic of much debate and speculation over the last few years. Crypto has become quite popular today, years after the very first cryptocurrency, bitcoin, came into existence in 2009.  It is still a relatively new tradable asset, the nuances of which are being completely understood. 

Since the introduction of bitcoin, many new coins have come into existence. This bunch of coins which are ‘not bitcoin’, are called altcoins. The number of altcoins has significantly increased over the last few years, as is evident from the data below. 

Source: statista.com

There are currently more than 10,000 cryptocurrencies in circulation. With the rise in the number of cryptocurrencies, new business interests and technological developments have boosted adoption levels. In fact, in a recent survey, cryptocurrencies will become mainstream within the next 10 years. 

Crypto market is a bit different from the stock market. Traditional stock markets operate over a given time and are more affected by big businesses and their individual performances. Stocks are also heavily regulated, while cryptocurrencies are free of any sort of regulation. When it comes to stocks, investment comes with ownership of a share of a company. While in crypto markets, this traditional sense of dividend does not work. In order to reap benefits, crypto investors can trade or stake their tokens.

The volatility of cryptocurrency prices is one of the key issues that traders and investors in the cryptosphere encounter. This is a key difference that sets the crypto market apart from the stock market.  Because cryptocurrency values are highly unpredictable, they are ideal for generating big gains through short-term trading. However, In the long run too, crypto prices tend to appreciate if you’ve chosen the right entry points. This is why the term ‘HODL’ or Hold On for Dear Life, came into existence. It signifies the importance of holding on to your assets through a volatile market. Investors that looked at the bigger picture have already seen the value of crypto grow and a significant price increase from top traded coins.

How to Access Cryptocurrency Prices? 

In order to understand the crypto momentum and spot a trading opportunity, you will be checking on crypto price history, by visiting a number of different platforms. Usually, price trackers like coinmarketcap.com, or coingecko are reliable sources to check on current as well as past crypto prices. 

Apart from these two, there are also CoinDesk’s crypto pages where you can find not only the prices, but also look at an overview of the sentimental as well as market analysis. For example, if you’d like to check bitcoin price history, you can go on the price charts and have a look at ‘all time’ prices. 

Below is how bitcoin price history looks on the 24th August, 2022. 

Source: coindesk.com

As you can see, the data shows range from 2015 to the current year, 2022. In 2015, the price levels used to be about $380. Over the last 7 years, bitcoin has grown to an almost exponential value. 

If you’d like to see the complete historical data with custom range settings, and also export this data for research or some number crunching, then CoinGecko provides a ‘historical data’ tab. This is also pretty useful if you’d like to check daily open and close prices. Following is an example of historical price data, segmented daily for the month of August, in 2015.

source: coingecko.com

Likewise, it is possible to check any of the leading coins’ prices in the past. For example, if you’d like to check ether price history or XRP price history, a similar approach can be followed. By studying the crypto price history, reading its chart and past trading volume, you will gain an understanding of when you should enter the market and calculate the risk tolerance for each asset. 

How to Predict Crypto Prices  

The prices of cryptocurrencies depend on a multitude of factors. While supply and demand are the most important, there is also a key role of macroeconomic variables as well as media verdict. Recently, cryptocurrencies have -in fact been facing more significant variations in prices due to governance and policy related matters. For example, the Federal Reserve’s take on inflation and the performance of the United State’s GDP also affects the entire crypto market ’s performance. 

There are three types of analysis that are helpful when it comes to predicting the performance of the leading cryptocurrencies. 

  • Sentimental Analysis:  This is an analysis of the overall media, social media as well as expert opinion of the various aspects related to the cryptocurrency. For example, ethereum’s update to the proof-of-stake system has been the basis of many twitter threads with both experts and novices interested in the conversation. Such discussions could easily be a part of the bigger picture and sway the overall positive/negative feelings related to the coin. Sentimental analysis focuses on emotional aspects rather than relying solely on technical charts. 
  • Fundamental Analysis: Analyzing the ‘value’ of the cryptocurrency is also one way to understand where it might end up in the future. By knowing whether the asset is overvalued or undervalued, its future position or movement can be determined. This is a bit difficult to do for cryptocurrencies. Nevertheless, there are may tools and information sources available for you to carry out proper research. For example, on-chain analysis is a viable way to understand the activity levels on a blockchain and thus determine the course of investment action. The best way to have a look at these is via dedicated websites like Coinmetrics which provides data charts to determine exchange deposits, wallet addresses, etc. for a given coin. 
  • Technical Analysis: If you are a relatively advanced trader, then technical analysis should also be a way to predict price movements. Technical analysis is based on the idea that trends repeat themselves, and prices follow these trends. With that in mind, it is easy to see why chart analysis, historical price data and trading volumes are important factors in carrying out technical analysis.

What Causes Crypto Prices to Rise?

Cryptocurrency prices depend on the principle of demand and supply. When the demand rises and the supply decreases or remains constant, the price is supposed to rise. This is also why the factor of ‘limited supply’ is paid so much attention to in terms of crypto. Some cryptocurrencies have mechanisms that “burn” existing tokens to prevent the circulating supply from growing too large and slowing inflation.

Macroeconomic indicators could also be a reason for the rise in prices of cryptocurrencies. For example, U.S. inflation slowed in July, taking some pressure off the Federal Reserve which has been raising interest rates to slow down the economy. The mellowing down of the inflation fears meant good news for the crypto market and July became the best month for crypto in 2022 so far. 

Overall market sentiment also affects bitcoin and altcoins prices. Many researches have established that when investors are feeling optimistic about cryptocurrencies, the prices tend to increase. Confidence is key when it comes to trading crypto. This is why the bitcoin fear and greed index is also an important tool in gauging the general sentiment. The primary factor influencing the price of cryptocurrencies is similar to stock market, and price variations include important financial news, natural disasters, investor reaction to government regulation and news, and pricing speculation from the experts. 

Why Are Crypto Prices Falling?

The factors that contribute to declining crypto prices are related again to the supply-demand principle, the level of economic stability or chaos in the world market and general sentiment.

At the time of writing, Bitcoin prices are now down more than 55% year to date. It is nowhere close to the all-time highs around $69,000 in November 2021. This year’s reasons for the declining prices are more related to the larger political reasons, unstable economy and US Federal Reserve’s hawkish eye on inflation. Quite naturally, for cryptocurrencies, the time is playing a key role in creating a shelter for investors from the rising inflation. While many believe in crypto’s ability to provide a relief from dwindling national currencies in some parts of the world, the fact that cryptocurrencies are quite volatile makes new investors nervous, according to Forbes.

Despite the fact that the crypto market is now in downtrend, there is a huge chance of recovery. From our recent article, experts have maintained a keen interest and optimistic approach towards the future prices as well as performance. Many experts still expect bitcoin’s price to rise above $100,000  in the future. To them, it is a matter of when, not if. 

Summary

Cryptocurrencies prices falling or rising are not a new phenomenon. In fact, for cryptocurrencies such volatility is a feature. It is also what sets them apart from traditional assets. The current bear market, which has been going on since the onset of 2022, has itself seen many ups and downs in sync with dramatic political and economical incidents. However, cryptocurrencies are considered as safeguards for the future since their tendency to perform does not depend on any government or central authority’s decisions. To be able to look beyond the market’s current state, it is important to equip yourself with the knowledge to predict the crypto prices with the help of technical, fundamental and sentimental analysis. 

Read More