If you are familiar with cryptocurrencies, you probably know how volatile their prices can be. But first, let’s see how can digital and traditional currencies be compared.
Traditional currencies are backed by centralized governments, meaning owning a traditional currency, you trust the government. Moreover, the supply of fiat is controlled by central banks, monetary reserves, causing an inflation, consequently big financial crisis, making it harder to recover after each recession.
In contrast, crypto–assets do not have a centralized control. They have a fixed supply and they cannot cause inflation. What about similarities: both can be used for buying products and services.
So, why are crypto prices this much volatile?
One of the main reasons is that the crypto market is quite new, and like all the other nascent markets, there is a lack of liquidity. Another factor is that crypto market is changing rapidly which results to crypto prices’ volatility. Equally significant are price manipulations. To increase their profits, central exchanges artificially manipulate crypto prices, by controlling displayed prices’ feeds, getting traders buy or sell certain crypto coins.
Because of the high volatility in crypto market, it is quite tough to manage crypto investing and trading. Thus, to ease the crypto investment management, it is advised to use different cryptocurrency portfolio tools.
Getting back to the main topic, let’s see how crypto prices are determined.
First of all, by supply and demand of a certain cryptocurrency. If a crypto–asset supply is high, but its demand is quite low, then the price of that crypto will decrease. And, if a crypto–asset has a limited supply, and it has a high demand, then its price will move up.
Cryptocurrency prices can also be influenced by the media and public emotions. As an example, if there is a negative news about a crypto, then its price will decrease, and the contrary.
The usefulness of a crypto can also affect its price. If a crypto–asset is solving some kind of problem, then it will significantly increase its value if it’s adopted globally to be used for the main purpose it was created for.
Another factor is how easily it can be mined. As difficult the mining of a coin is, the higher its price will be, as it means that the supply will grow slowly enough.
OK, but how to predict the price of a coin?
Like no other market, in crypto market there are never any guarantees. There have been lots of predictions on Bitcoin price for 2018 that the price will reach to $30.000, 40 50 as of its logic. Let me explain. If we consider that the market growth $1,000-$20,000 was a natural growth, based on the supply and demand economic model, then it’s logical enough to consider its predictable growth.
There are a number of ways to predict a price or it’s potential trend, which is based on technical or fundamental analysis. However, the best way to predict the price of a coin is considered by combining technical and fundamental analysis together.
Lots of people can argue that technical strategy is more important than fundamental, or the opposite. Indeed, the price starts following the technical supply and demand levels when fundamental news “somehow” supports its uptrend and downtrend.
Right now, some predict that the price of Bitcoin will reach 100,000 USD by the end of 2021. There are also those who predict that the BTC price will go down and be less than 3,000 USD.
However, it’s important to consider that blockchain, cryptocurrency, and in particular bitcoin are getting more and more attractive for the smart money investors. Remember that crypto coins came here to stay, so if they are going to stay, you have to take close attention on which cryptocurrencies will win the race, based on their technology and the issues they are solving. To monitor and manage crypto holding, use crypto trackers. To find out more about these tools, check this ultimate cryptocurrency portfolio tracker guide.
