How Does Cryptocurrency Go Up In Value? – Factors Affecting Supply And Demand
You may be puzzled over the value fluctuations of cryptocurrency, and what are those factors that make the prices up and down? Hearing good things about crypto trading investments may have you crave to profit more on this kind of platform. Now, since you are ready to know more about this industry, let us discuss how cryptocurrency goes up in value.
Cryptocurrency Value Increase
In cryptocurrency, the market is the driver that moves the prices up and down. It is relatively connected to supply and demand. When there is a higher supply, demand decreases, and the same goes when demand is higher, there is a possibility that supply will be decreasing.
Now, let us take Bitcoin, for example. Today, Bitcoin has a cap of 21 million, and when that cap is reached, you can no longer avail Bitcoin as it is not going to create more. This is going to create a shortage. As the law of demand and supply goes, demand increases when supply decreases. With this, the price will surely go up in value because people now realize the benefits of bitcoins. People want to, but because it is what others do. Yes, it created a bandwagon effect.
Generally, the price will surely skyrocket up when the demand isn't backed up with supply. And that explains how cryptocurrency goes up in value. This explanation has two factors affecting demand and supply, which is External and internal factors.
Internal Factors Affecting Supply And Demand
First, let us know what the Internal factors are. With internal factors, there are traders and the influence of other cryptos.
- As active traders, it can have a large effect on the movements of the rates. Most of the middle traders only depend on what significant traders buy, sell, and hold. Also, significant traders can manage the rise and fall of prices by using the tool under appropriate market conditions.
- Prices can significantly influence other cryptos; for example, once BTC's price goes up, fiat value will surely drop since more traders will certainly choose BTC because it is going up. In this case, altcoins can maintain its position by having strong support.
External Factors Affecting Supply And Demand
Next on the list, External factors. These factors include Global Adaptation, updates on software, mass media influence, and trade market integrations.
- Once companies, stores, and people accept digital forms of payment, this will absolutely increase the demand. When people reject it, the opposite happens anyway. That is how global adaptation affects prices.
- Crypto Software updates can affect the prices as well. Like in what happened to Bitcoin as they previously updated their software, which is SegWit. With this upgrade automatically, the price of Bitcoin doubled.
- Mass Media. No matter what the mass media reports, it can significantly affect prices as it can influence people on how they should perceive cryptocurrency positively or negatively.
- Trade Market Integration. As the market expands, so do prices. It is when other popular cryptos accept new cryptocurrency the legitimacy increases and create more demand. It will be easier to recruit more participants as more people buy and sell cryptos. This will make it more popular.
Other Factors That May Affect Cryptocurrency Value
Aside from supply and demand, these are the factors that may affect prices as well.
- Security – The cryptocurrency industry is safe from fraud and other criminal activities as there are some reports of hack attacks where someone lost $750,000 worth of Bitcoins. And with this, bitcoin dramatically dropped 36 percent. It is also the same with regular banks, which are not safe from security breaches and robberies. You will just have to educate yourself more on how to secure your money.
- Bitcoin Price – Since bitcoin is the primary crypto player, anything that happens to it can significantly affect other cryptos. When it goes up, the market follows, and if it experiences downturns, so does the market. It is like, why should you buy if it is doing worst?
- Stability – Since Bitcoin is not under a central authority, its security and transactions only rely on developers and miners. Resolving fundamental issues may take time, which is frustrating for its community.
- Scalability – Bitcoin's software can only handle three transactions per second. Even though there is not much demand for it yet, others are concerned because it may push investors against competitive cryptos. They are more comfortable if it will be faster transactions.
How Crypto Prices Change Over The Past Few Years
Let us take Bitcoin, for example. This can give us a good look at how the overall cryptocurrency market has been through the years. When Bitcoin started back in 2017 with only less than $1,000, it experienced a downfall as China did some investigations on the country's cryptocurrency exchanges. The majority of Bitcoin happened in China, and its price went down to $775, while Almost $15 Billion is the overall market cap.
Bitcoin has recovered slightly and went a little over $1,000. And again, it dropped back down because of the denied SEC while the overall market cap went down to $5 Billion in just two days. Bitcoin experienced some ups and downs due to some unavoidable factors, and in February, Bitcoin went back up, passing the $11,000 mark while the overall market cap is around $500 Billion. Aside from some news of market regulations, the price has been steadily going on a downtrend with some short-lived recoveries. Learn more about how does cryptocurrency go up in value here!
Cryptocurrency's value can be great impacted by several factors, and knowing these can help you understand more what good can trading crypto can bring you. Understanding how does cryptocurrency go up in value can help you speculate about building a more cohesive trading strategy. Create more strategies or techniques so you can be able to make crypto trading work for you. Now, are you ready to start your cryptocurrency trading venture? If you are, start with trying your speculative strategies on a demo account to gain more experience without any risk of losing. And if you are confident enough, you are ready to make your first trade.
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