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What makes crypto prices go up? This is a question that many people are asking as the market continues to fluctuate. While there are many factors that can influence prices, there are some key things to watch for that could give you a clue as to where the market is headed.
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Introduction
When it comes to investments, timing is everything.
The same can be said about the cryptocurrency market. Even a small change in the price of Bitcoin or Ethereum can have a major impact on the value of your investment. So, what makes crypto prices go up?
To answer that question, we need to first understand how cryptocurrency prices are determined. Unlike stocks or commodities, there is no central exchange for cryptocurrencies. Instead, prices are set by individual exchanges according to the demand and supply of each particular coin.
What this means is that the price of a cryptocurrency can vary depending on which exchange you’re looking at. For example, at the time of writing, the price of Bitcoin on Binance is $9,700 while the price on Coinbase Pro is $9,600.
The difference in price is due to the fact that Binance has more buyers than sellers while Coinbase Pro has more sellers than buyers.
Another factor that can impact prices is trading volume. When there’s high trading volume, it means that there’s a lot of buying and selling activity happening and this can lead to prices going up or down depending on which way the market is moving.
Economic Principles
Prices are determined by the meeting of supply and demand in a free market, and crypto assets are no different. When demand for a crypto asset goes up, so does the price, and when demand falls, prices also fall. There are a few different things that can drive demand for a cryptocurrency.
Supply and Demand
The price of anything is based on the laws of supply and demand. If there is more demand for a product than there is available supply, the price of the product goes up. If there are more products available than there is demand, the price goes down.
The same principles apply to cryptocurrencies. The price of a cryptocoin is based on how many people are buying and selling it and how large the available supply is. If more people want to buy a coin than there are coins available, the price goes up. If more people want to sell a coin than there are buyers, the price goes down.
The Greater Fool Theory
The “Greater Fool Theory” is a popular economic principle that helps to explain why asset prices often continue to rise even when they are clearly overvalued. The theory states that there will always be someone willing to pay a higher price for an asset, even if that price is not based on any underlying intrinsic value.
In the world of cryptocurrency, the Greater Fool Theory is often used to explain why prices continue to rise despite concerns about bubbles and general overvaluation. While there are many other factors at play, the theory provides a helpful framework for understanding why crypto prices are so volatile and why they often seem to defy traditional economic principles.
Technical Analysis
Many investors believe that technical analysis can be used to predict price movements in the crypto markets. Technical analysis is a method of using past price data to identify trends and make educated guesses about future prices. Some people are very successful at it, while others find it difficult to interpret the data.
Support and Resistance Levels
Support and resistance levels are key in technical analysis and are used to identify potential turning points in the market. A support level is a price at which demand is thought to be strong enough to prevent the price from falling further. A resistance level is a price at which selling is thought to be strong enough to prevent the price from rising further.
When the market is trending downwards, the support levels become nearer and nearer to the current price, as each new low is made. Once the market reaches a point where it can no longer make new lows, it is said to have found support. The market may then rebound off this support level and start to trend upwards.
Similarly, when the market is trending upwards, the resistance levels become nearer and nearer to the current price, as each new high is made. Once the market reaches a point where it can no longer make new highs, it is said to have found resistance. The market may then retrace off this resistance level and start to trend downwards.
Support and resistance levels can be used by traders to enter or exit positions, as well as to set stop-losses.
Candlestick Charts
Candlestick charts are one of the most popular ways to visualize crypto price data. Each candlestick represents a certain time period, and the candlesticks are strung together to form a price chart.
The earliest use of candlestick charts is often attributed to an 18th century Japanese rice trader Munehisa Homma. Homma was a rice trader in the Osaka Rice Exchange, and is said to have developed the first candlestick chart while trading rice.
The basic structure of a candlestick chart is composed of a body, which represent the opening and closing prices for the given time period; and wicks, which represent the high and low prices for the period.
The color of the body is often used to indicate whether the given period was bullish or bearish. A green or white body indicates that prices closed higher than they opened, making it a bullish period. A red or black body indicates that prices closed lower than they opened, making it a bearish period.
The wicks can also be used to give additional information about price action during the period. If the wick is long, it means that there was significant price movement during the period, even if prices ultimately closed near where they started.
News and Events
There are essentially two things that can makecryptocurrency prices go up: news and events. News can be everything from a country legalizing cryptocurrency to a new exchange listing a popular coin. Events can be things like a hard fork, airdrop, or meetup. In this article, we’ll explore how news and events can affect cryptocurrency prices.
Government Regulation
Government regulation is one of the key drivers of the cryptocurrency markets. When a government makes a decision that affects the crypto industry, it can have a big impact on prices.
For example, in early 2018 when the South Korean government announced that it was planning to crack down on crypto exchanges, prices plunged. However, when the Japanese government decided to regulate crypto exchanges in a similar way to stock exchanges, prices soared.
Similarly, when China cracked down on ICOs and exchanges in September 2017, prices crashed. However, when the US Securities and Exchange Commission (SEC) announced that it would allow some ICOs to be registered as securities in April 2018, prices spiked.
Government regulation can therefore have a big impact on cryptocurrency prices and is something that traders need to be aware of.
Media Hype
One of the most common things that can drive up the price of a cryptocurrency is media hype. This happens when traditional media outlets pick up on the story of a particular coin and write stories about it, often in a positively skewed way. This in turn gets retail investors interested and they start buying the coin, thereby driving up the price.
It’s important to remember that just because a particular coin is getting a lot of media attention, it doesn’t mean that it’s a good investment. A lot of times, the media attention is just a passing fad and the price of the coin will drop soon after. One example of this is the Dogecoin craze of early 2014, where the prices of dogecoins soared after they were featured on several popular news sites, only to crash back down to earth a few weeks later.
Conclusion
To summarize, there are four main factors that affect crypto prices:
1. Supply and demand
2. Media coverage and public opinion
3. Government regulation
4. Innovation and new technology
