Bitcoin has become a popular alternative to the traditional financial system. Cryptocurrency’s price is one of the key aspects, as it can vary rapidly and drastically. This article will explain the key factors influencing cryptocurrency price fluctuations and help you make sense out of them.
Supply and demand
In order to understand cryptocurrency prices, the supply and demand principle is fundamental. Price increases when demand for cryptocurrency rises. Prices fall when demand falls. It is the same for cryptocurrency’s supply – when it increases, prices go down and if the supply drops, they rise.
Market Sentiment
The market sentiment also influences the price of cryptocurrency. The market sentiment describes the attitude that traders and investors take towards one cryptocurrency, or to the entire cryptocurrency market. Positive market sentiment can lead to higher prices. Negative sentiment, on the other hand, can result in lower prices.
News and Events
Even news stories and current events can have an impact on the price of cryptocurrency. Positive news can lead to a rise in prices, for example, if a new partner is announced or there’s a release of a feature. Prices can also drop if there are negative events, like a cyber-attack or an enforcement of regulations.
Market Manipulation
Market manipulation is possible because the cryptocurrency market is largely unregulated. Whales are individuals and organizations that hold large quantities of cryptocurrency. They can manipulate price using these holdings. It is possible to buy large amounts of cryptocurrency and drive the price up, then to sell the currency at a gain to cause the price drop.
Volatility
Bitcoins are notorious for being volatile, and their prices fluctuate wildly. Although this is exciting for traders seeking to earn a profit it may be unsettling for investors who want a steady investment.