Introduction
Cryptocurrencies have been getting a lot of attention lately from investors and the media alike. Amateur and professional investors alike are wondering what factors can affect cryptocurrency prices. In this blog post, we'll attempt to answer some of those questions.
Cryptocurrency explained
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, which means they're not subject to government or financial institution controls. Bitcoin, the first and most well-known cryptocurrency, was created in 2009.
Supply and Demand
The most basic law of economics is that prices are determined by supply and demand. If there's high demand for a product but low supply, prices will go up. If there's low demand but high supply, prices will go down. When it comes to cryptocurrencies, the circulating supply and the total supply can affect prices. For example, if there's only a limited supply of a particular cryptocurrency but high demand for it, prices will go up. On the other hand, if there's high supply but low demand, prices will go down.
News Events
Another factor that can affect cryptocurrency prices is news events. For example, if a major exchange gets hacked or a country announces plans to ban cryptocurrencies, prices across the board are likely to drop because investors will lose confidence in cryptocurrencies as a whole. However, if a major company announces plans to accept payments in Bitcoin or another cryptocurrency, that might lead to an increase in price for that particular currency.
Market Manipulation
Investors with deep pockets can also manipulate markets by buying or selling large amounts of a particular cryptocurrency. If they sell all at once, that can drive prices down dramatically. Conversely, if they buy up a lot of a particular cryptocurrency, they can drive prices up. These market manipulations are more common in smaller markets like cryptocurrencies than in larger markets like stocks or commodities.
Conclusion
There you have it! These are some of the factors that can affect cryptocurrency prices. Of course, this is by no means an exhaustive list; other factors such as global economic conditions can also play a role in determining prices. Nonetheless, we hope this gives you a better understanding of how pricing works in the world of cryptocurrencies.
