What Affects Crypto Prices

What this means is that there are a lot of newcomers not only to the crypto market and crypto trading but to any financial market in general. This high saturation of inexperienced traders on the market is mainly caused by Bitcoin, as more and more people hear the stories of how fortunes were made from minimal investments.

But when these people join the crypto market, there is one question that they ask themselves and others: What affects crypto prices and how can we know upcoming crypto price movements? This is a very important question and answering this question is a huge step toward becoming a successful trader. This is why we will be taking a look at it and trying to figure out exactly what affects the prices of cryptocurrencies.

Crypto Prices – What Affects Them?

When talking about crypto prices and what affects them, it is not a simple subject to discuss and analyze. Unlike stocks, where you can simply look at the performance of the company the stock is associated with and get a general idea of stock price movement, cryptocurrencies don’t work like that. Since cryptocurrencies are not associated with any hard assets, meaning there is nothing backing this asset, price movement all boils down to market sentiment. Now let’s take a look at some of the factors that affect these price movements, and why they are so important.

Bitcoin Price

When looking at the crypto market, you will see that on average around 45% – 50% of the whole crypto market capitalization is taken up by just Bitcoin. What this means is that most of the cryptocurrencies on the market are tightly tied to Bitcoin and if the Bitcoin price moves, most cryptocurrencies follow suit. This is usually the case if Bitcoin loses or gains a lot. So if Bitcoin’s price moves slightly, the rest of the market is not affected to an extent where it is significantly noticeable.

But when trading, making trade decisions based on just Bitcoin is not recommended.

Utility

Another important factor to consider is the utility of the token and how useful this utility is at this given time. Since cryptocurrencies operate on blockchains and are associated with many different projects and networks operating on blockchain technology, most of these tokens have some sort of usage on their dedicated networks. For example, Ethereum is the world’s largest blockchain and there are many projects and networks that call Ethereum their home. In order for these projects to operate and be able to complete different tasks on the blockchain, users will need to use Ether, the Ethereum crypto, in order to complete and verify these tasks. So if there is a huge demand for projects and networks operating on the Ethereum network, the price of Ethereum is destined to go up as demand for it rises. On the other hand, if we see that interest in Ethereum-based projects falls, there will be less demand for it, meaning more people will be selling than buying, which will drop the price of Ether.

But since cryptocurrencies are volatile and are not backed by any asset, simply basing your trades on this one aspect is also not a good decision either.

Peoples Belief

Since cryptocurrencies are not backed by any hard assets, unlike forex or stocks, market sentiment can make or break any token. What this means is that their price depends entirely on people’s belief in the token and whether people think the price is going to go up or down. If the general consensus in the market is that the price of a specific crypto is going to go up, it will most likely spread like wildfire causing more and more people to buy this token. But as soon as some cracks start to show, people tend to take out their profits, which causes the motivation to change from buying to selling, and the crypto price is destined to fall.

Making an analysis based on this factor can be tricky. There are times when it is easy to see that a given crypto has reached a sweet spot in terms of price and it is likely that people will start taking out profits, which can be a signal to do the same. At the same time, there are instances when belief changes or large chunks of crypto move from one network to another, causing the price to change suddenly and without any prior warning. In most cases, this is caused by a few factors which we will discuss below.

Whales

Because the crypto market is based on belief and speculation, if you have very large sums of money and know what you are doing, there is an easy way to manipulate the market. The people who do this are called “whales”, and they can change the market direction whenever it benefits their trading or investment plan. Whales will either quickly enter or exit the market, which causes very sudden spikes in prices, and since a large number of crypto traders are inexperienced, they don’t see this manipulation or simply ignore it and try to ride the wave. For example, if the price of Solana has been on a downward trend, Whales can enter the market and buy millions worth of Solana, which will raise the price enough for it to be noticeable. Once this happens, people think that Solana has entered a bull market and will start to buy it themselves. This will increase the price even further. Once the price reaches a certain level, the whales who have bought a very large number of tokens for cheap will start selling, making significant profits and dropping the value of Solana back to where it was, or even further.

This is a very common market manipulation scheme that is considered a scam by many traders. It is commonly known as a “pump and dump”, and it is important to know how you can spot these manipulations in order to avoid being a victim of them, or in the best case scenario, take advantage of it yourself.

Geopolitics and the world economy

Now, most of you might be surprised when seeing geopolitics being mentioned with cryptocurrencies, but if we take a look at the market and compare it to the geopolitical and economical state of the world, we will see some correlations. As cryptocurrencies are getting more and more popular, they are now commonly used as a hedging tool to fight inflation, just like we use gold, but in a much riskier way.

While most governments won’t admit it, there are speculations that they are making significant investments in cryptocurrencies, and when there is a need for money, they tend to sell their investments in order to fund whatever is necessary. For example, during war conflicts, like the ongoing war between Ukraine and Russia, we can see the price of crypto somewhat following this war. During this time, speculations are that Russia sold large quantities of crypto in order to fund their war efforts. But this fall in crypto prices when the war started can also be attributed to the people of Russia and Ukraine, who most likely started to sell their crypto investments in order to get funds so they could get away from the situation.

Supply

Supply and demand are some of the highest determining factors for any asset, including cryptocurrencies. If there is a high demand for crypto and the supply is low, the price is destined to go up, but if the supply is vast and the demand dwindles, then prices decrease. This is why Bitcoin is the largest cryptocurrency on the market, despite Ethereum having the largest and most used blockchain. Since there are only 21 million Bitcoins that can ever be created, the price of this asset is high as there is no way for inflation to hit this asset. But in the case of Ethereum which has an unlimited supply, if the demand for this token rises, there is always the possibility to create new tokens, which will eventually stabilize the supply and demand.

Because of this, it is a good idea to look out for cryptocurrencies that have upcoming burns. Crypto burns are when a certain number of tokens are removed from circulation forever. Since these tokens are removed from circulation it means there is less supply which in turn raises the price of this token. A good example of this is BNB burns, which is done on a regular basis by Binance in order to stabilize the price of this token, not allowing a large number of tokens to flood the market.

Why is it important to know these factors?

Knowing these factors is very important if you want to become a successful trader. Since cryptocurrencies are very volatile assets, simply looking at technical indicators and conducting technical analysis is not enough. Of course, using technical indicators is really important and without them, you will most likely not succeed as a trader. But seasoning these technical indicators with some fundamental knowledge is the best way to approach crypto trading.

Once you know how the crypto market works and behaves during certain scenarios, you will be able to easily spot upcoming trends even before they take place, allowing you to confirm and back up your speculations.

FAQs on what affects crypto prices

What makes crypto prices go up and down?

There are many factors that cause crypto prices to go up and down. There are simply speculations about these currencies and what people believe will happen to them in the future. There is also usage of these tokens and the demand for them playing into the equation. Crypto prices are also affected by the geopolitical and economical state of the world.

Can Bitcoin go to zero?

Technically speaking, yes. Since Bitcoin is not associated with any hard asset or does not hold any significant utility on any blockchain projects or networks, its value is simply based on people’s belief in this asset. What this means is that there is a chance for people to simply forget about Bitcoin and its value will drop to nothing. But the possibility of that happening is very slim, and Bitcoin will always be worth something, even if it’s a couple of cents.