Bitcoin, you hear that word so often that even you, who never risks money think whether to invest in it. Can it be really that simple? And what can influence the price of cryptocurrencies? Find out the most common and powerful price influencers of cryptocurrencies.
Prices of cryptocurrencies depend on demand and supply
Cryptocurrencies are virtual money that do not have any physical form. Their value is based basically just on supply and demand of users. If a bigger demand occurs, the Exchange rate of the cryptocurrency increases with it. On the other hand, if big masses decide to dump cryptocurrency, the value will quickly fall down. So the main factor that affects cryptocurrency prices is the trust of users and investors. The article Cryptocurrency Trading Tutorial For Beginners very well summarizes how to evaluate whether a cryptocurrency has the potential to gain a huge popularity.
The use of the cryptocurrency
At first, cryptocurrencies were created as a virtual currency for fast and cheap payments over the internet. Which means the more merchants support and accept payments in cryptocurrencies the more practical use they have. But in these days, cryptocurrencies serve also another purpose and are more and more often used for such – investing. People from more developed countries buy them to make money on their growth. And in countries with an unstable economy, people buy virtual currencies to preserve the value of their money. Some cryptocurrencies (take Ethereum for instance) also have a great use thanks to smart contracts. Cryptocurrencies that do not have practical use will probably sooner or later die out.
Government authorization of cryptocurrencies
If the government of an economically significant state expresses support for cryptocurrencies, user confidence increases and with it also the value of the digital coins. As a great example of this is Japan, which in 2017, declared Bitcoin as the legal currency. The BTC value after this announcement began to grow greatly. Nevertheless, it also works the other way around. Restrictions or prohibitions crippled by governments can trigger a sharp decline in the market. And a proof of that is China, that banned in September 2017 ICO (initial coin offering), and closed several cryptocurrency exchanges. This message caused a massive drop in the cryptocurrency market. A month later, the Russian National Bank issued a statement about a planned ban on trading cryptocurrencies, after which the otherwise growing bitcoin market began to stagnate. The regulation of bitcoin and other digital coins is also being prepared by the European Central Bank.
Media exposure and popularity increase
Reports of the rising value of cryptocurrencies attract new investors resulting in an increase in demand. And as was already mentioned, the rise of cryptocurrency prices quickly follows. The media greatly influence investors’ views and hence the entire market is affected. However, not only the media have such a power, even certain well-recognised individuals can shape the price of cryptocurrencies. You probably know JPMorgan, the biggest American bank, don’t you? If so, you might know its general manager, Jamie Dimon, that in September 2017 publicly stated that in his mind, Bitcoin is a fraud that will eventually fail. All the Bitcoin holders were uncertain what to think about this statement and the weaker ones sold them, causing a decrease in the Bitcoin price (demand was at that time relatively low). After a while, the market realised that the information he presented is not anyhow important and Dimon was accused of manipulating the Bitcoin Exchange rate.