When compared to fiat, cryptocurrency has its key distinguishing features: it is not backed by physical assets or controlled by the government. Besides, coins and tokens are generally limited in supply. But they have something in common: all types of funds are prone to fluctuations, that are especially noticeable for the cryptocurrency market. What are the reasons for such volatility? In this article, we will shortly point out the key features that form cryptocurrency value.
The main factors that influence cryptocurrency prices are their supply and demand. Little demand and much supply decrease the liquidity, but the high demand and the comparatively small amount of assets together lead to the high liquidity of the cryptocurrency. In other words, liquidity is the availability of liquid assets for trading it for fiat currency. How is it formed? The key aspect is the trading volume transacted daily. Every transaction is recorded in order books at every service, so they all count, even though different cryptocurrency services use their unique algorithms. If the number of transactions is low overall, the price of cryptocurrencies goes down as well.
Mining difficulty also plays its part. If mining costs are higher than market prices, miners are less interested in selling their assets, and this seriously influences global costs. If miners stop selling coins due to the costs, there is less sell-side pressure and the value of coins increases.
Crypto news can have a significant impact on the price of coins. Positive online hype about such digital assets as BTC, ETH, and LTC keeps them among top cryptocurrencies. But, unfortunately, any coin can lose its popularity and get attacked by the crypto community. In most cases, it is caused by fake news or hacking that is still the problem that matters with every hack into systems, wallets, and exchanges leading to price crashes.
What also contributes to the cryptocurrency value? Extra activities, such as halving, play their roles.The idea is that the supply of bitcoin declines, but the demand doesn’t change, so, the price is boosted. With halving, BTC prices fluctuate and change dramatically, and the event feeds the public’s interest with all the Internet hype, speculations, and price predictions.
So, halving, which happens every four years, is one of the most efficient factors that make more people interested in holding and accepting the coin online. Here you can read more about the peculiarities of halving 2020.
The economic environment is undoubtedly important: when the global recession starts, all the assets are influenced. And even cryptocurrency, which is considered to be the most stress-resistant type of money, has faced the so-called “black swan” dramatically: just check what has happened to BTC in March 2020.
To sum up, liquidity, mining, media, and such events as halving, are the key factors that shape the price of cryptocurrency and make it fluctuate. But is volatility a benefit or a drawback? Whenever one can be scared of instability and insecurity, that is the thing that attracts investors to the industry and enables it to develop this quickly.
Another matter is price prediction: even a detailed understanding of the market doesn’t guarantee that one can make them right. So, stay tuned and get the information on the needed coins daily and be sure to experience NOWPayments—the most convenient payment processing.