When we talk about cryptocurrencies, we always mention the extreme volatility of the prices. While digital currencies are a popular trend, and are believed to be a part of the future. They bring great opportunities to make money, as well as a possibility to lose your investment. Of course, it would be so nice if we could just predict the prices, so we could know which is the best step to take.
Unfortunately, it is impossible to make such predictions and yet, it is important to say that crypto prices can be anything but random.
Truth is, it is possible to make a forecast, based on some critical variables. This can be useful for both day-traders and long-term investors.
We will have a look at some main factors influencing the prices of cryptocurrencies.
The volatility of the crypto market
First, it is important to say that the volatility of crypto dates back to its creation. Bitcoin wasn’t created to operate as a “share” and had no business or marketing team to promote it. So, for buyers, it was absolutely clear what they were paying for.
Bitcoin was created to be a peer-to-peer system, whose value is implicit in the coin itself. With that in mind, Bitcoin is valuable as long as the community considers it valuable and trustworthy.
Variables influencing the price of cryptocurrencies
Cryptocurrencies are speculative assets, but it is not only this, influencing the market and crypto prices. Here are 3 main reasons why crypto prices go up and down.
Supply and Demand
If you are familiar with some economic rules, you must know that supply and demand determine the price of a given product. So, as supply rises, the price falls, and with the demand rising, so does the price.
Well, Bitcoin managed to manipulate this law. Its inflation rate is designed to reduce by ½ every four years. This means that the supply reduces, and the demand remains the same. Of course, that led to a huge price accumulation for Bitcoin, as well as for other cryptocurrencies.
Hot news
Bitcoin and other cryptocurrencies have seen some massive fluctuations in their prices and trading volume, as a reaction to hot daily news.
A great example of that is Elon Musk and his announcements for buying $1.5 Billion, which led to an immediate price jump. When he withdrew the acceptance of Bitcoin payment, the exact opposite thing happened - the price crashed.
Regulations
Another factor influencing the crypto market and the prices of digital assets are government regulations and bans. While some countries are adopting cryptocurrencies, others are not so open with the idea. For example, when China banned crypto, the Bitcoin network rate was reduced by half, which halved the cost of the crypto production over a couple of weeks.
So, when is the best time to invest in crypto?
Well, if we live in an ideal world, we can say just buy low and sell high. Back to reality, it is not that simple. Since Bitcoin and other cryptocurrencies are so volatile, and as we saw, can be influenced by so many factors.
Of course, before you invest in crypto, you must have a clear purpose. Are you going for the long term, or do you want to make some profit from day trading?
In our opinion, the best profits come with the long-term investment, but keep in mind that with the right strategy, day trading can be profitable as well.
Fortunately, today there are tools, such as CryptoArbi.com, developed to do the hard work for you. With us, all you have to do is choose a subscription plan, and leave the rest to us. We will find the best trading opportunity and take it for you! Trust us!