Remember That Bitcoin And Other Cryptos Are Volatile
For those who have been investing in cryptocurrencies for years, dramatic gains and losses are nothing new. For example, bitcoin recorded a previous record high of nearly $20,000 in December 2017, but by December 2018 was trading below $3,500.
As bitcoin gains adoption, “the up moves and down moves can be breathtaking. Taking the long-term view puts these moves in perspective, says Greg King, founder and CEO of Osprey Funds, an investment firm specializing in digital assets.
For example, even though bitcoin was down 50% in April through May of this year, it is up 25% from those lows and still up 100% from Thanksgiving last year.
For seasoned bitcoin investors, the lower prices were welcome. Then, you would actually see the drop of value in bitcoin as an opportunity to purchase, Danial says.
How Crypto Is Used
Crypto-assets were first developed as a digital form of currency, to be used as money. Some stores accept crypto as payment for goods and services, and some ATMs let you withdraw it as physical money. However, crypto is not legal tender in Australia and is not widely accepted as payment.
Crypto is more commonly used as a speculative, longer-term investment, as most people dont access their balance for everyday transactions.
Cryptocurrencies Are Not Centralized Its Value Increased From Different Seeds Like
1: Supply of cryptocurrencies and the markets need
2: Cost of building a bitcoin through the mining procedure
3: Tips are given to Bitcoin miners for proving dealings to the blockchain
4: Number of competing cryptocurrencies
5: Rules controlling its sale and use and the form of its internal authority
6: News stories
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What Investors Need To Know About Bitcoin Price Projections
As with any investment, financial planners and other experts advise against letting Bitcoins price fluctuations lead you to emotional decision making. Studies have shown investors who contribute regularly to passive index funds and ETFs perform better over time, thanks to a strategy called dollar cost averaging.
Thats part of why experts recommend not investing more than 5% of your overall portfolio in cryptocurrency, and never to invest at the expense of saving for emergencies and paying down high-interest debt. The path to long-term wealth and saving for retirement is most often successful for people with diversified investments like low-cost index funds, with crypto making up a very small part.
And even with crypto, experts say a set-it-and-forget-it approach makes sense. Passive investing is a very valid way to achieve financial goals, says Arkansas-based certified financial planner Sarah Catherine Gutierrez.
Since crypto is still new to most people, its OK to wait and see how things unfold before putting your money on the line. We only have about 10 years of data to inform crypto price predictions, and the value of Bitcoin while climbing long-term is highly volatile from day to day.
Volatility makes it hard to know the what and why behind your crypto strategy. Before investing in Bitcoin or any alternative assets, ask yourself what you want to achieve from your participation in this particularly volatile market, and why. That will help you stay focused.
Breaking Down The Reasons That Bitcoin’s Price Keeps Rising
As of December 16, Bitcoin has increased by about 195% year-to-date, topping $23,000, but what is driving this meteoric rise? The reasons for its appreciation vary, but Bitcoin has grown from what was once considered a scam by many into something that has matured into a viable investment made by famous billionaire investors, large institutions, and retail investors alike. Why are these investors so bullish on Bitcoin even after it has surpassed all-time highs?
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So How Do Cryptocurrencies Gain Value
Cryptocurrencies gain high values like other currencies, based on the level of community involvement such as user requirements and utility of coins. Lets make a general overview of what factors makes cryptocurrencies valuable, and you will get more valuable trading information and for the investment from the-bitcoinpro.com.
How Is The Price Of Crypto Set On Decentralised Exchanges
Peer-to-peer trading occurs on DEXs through automated smart contracts that execute trades without an intermediary. DEXs use liquidity pool protocols to determine crypto pricing. These exchanges execute trades or swaps between users directly and instantly from wallet to wallet. There is no intermediary like in a CEX.
Swaps are made in one of two ways: through an order book that interacts with the blockchain, or through an automated market maker approach. Since we already know what order books are, lets talk about AMMs. AMMs remove the need for counter-parties to set the price. Instead, AMMs us algorithms to set the price, which means that you can trade a particular coin or token regardless of whether theres someone on the other end of the trade. To facilitate this, liquidity pools, are needed. These pools pay users to keep some of their funds in a smart contract that can then be drawn on for trades to occur.
With AMMs there are no prior orders in an order book. There are only takers looking to exchange a specific cryptocurrency pair.
DEXs are non-custodial, which means you are responsible for managing the safety of your crypto. You keep your crypto secure whilst trading on DEXs by using a hardware wallet and seed phrase recovery wallet. You can find the best hardware wallets to keep your crypto safe right here and the best metal seed phrase storage wallet for your private keys here.
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Cryptocurrency Markets Are Highly Volatile Here Altsignals Look At The Reasons Why The Price Of Crypto Goes Up And Down And How They Can Gain Value
Whether youâre new to cryptocurrency or you have some trading experience, understanding and being able to read the markets can be incredibly difficult. Like all markets, from centralised currencies and other securities to assets and properties, the price of cryptocurrency fluctuates based on a large number of factors. However, when it comes to cryptocurrency, these variables can differ wildly from those that determine the price of more traditional currencies, securities and assets.
So, if youâve ever wondered just what factors determine the value of cryptocurrencies and what variables make these values go up and down, keep reading. In this post, weâll take a deep dive into cryptocurrency price fluctuations and explore what you should be looking out for when it comes to rising and falling values.
Why Does Crypto Go Up And Down
Cryptocurrencies are assets, and, as with any asset, the price of a cryptocurrency is subject to changes. Since cryptocurrencies don’t have a governing body that can dictate their price directly, the price of a particular cryptocurrency is determined by the balance of supply and demand in the market. The exception is stablecoins, whose prices are pegged to fiat currencies and fluctuate with them.
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Mining Becomes Difficult Or Expensive
Supply can decrease if mining becomes more difficult or expensive, which could happen if theres too much competition and not enough new coins being created.
When it becomes too difficult or expensive to mine, miners will stop mining, and demand for the coin may decrease.
Miners are how new coins are created so if this happens too much, supply decreases, and price increases.
Supply also goes down when people lose their private keys which means that they cant access their digital assets anymore even though its still on the blockchain network somewhere.
In these cases as well prices tend to go up because there is less of an opportunity cost in purchasing what someone else owns.
How Do You Track The Value Of Bitcoin
Bitcoin’s value depends on your financial circumstances and investing goals. Bitcoin’s price is publicly available at any time through most cryptocurrency exchanges, along with cryptocurrency news and market websites. CoinMarketCap is one of the larger and better-known cryptocurrency valuation and data websites and is a trusted source of bitcoin price data. If you have an account at an exchange or brokerages like Coinbase, Robinhood, Gemini, Binance, eToro, or FTX, you can view the current price in your trading app or account online.
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Who Sets Bitcoins Price
The value of bitcoin is determined by the same market forces that influence the value of any other goods or services. If more people want to buy than sell, prices will likely increase. If there are more sellers, the price tends to fall. This is similar to the stock market, real estate, and most other open marketplaces.
Bitcoin has a fixed maximum supply of 21 million coins, with nearly 19 million coins created. This concept is comparable to outstanding shares in the stock market.
When an open buy order and sell order meet at a common price, the order executes. That final trade price is the current bitcoin value. You can find the most recent bitcoin price using a site like CoinMarketCap or a public blockchain explorer, which is a site that lets anyone review any bitcoin transaction thats ever taken place.
You may find that some exchanges list different bitcoin prices. This is because some exchanges operate independently of the open market and serve only their members, so prices may vary slightly from the overall market. Sometimes this is beneficial because you may be able to buy bitcoin without paying network fees, which may be more than the exchanges fees. Additionally, there is a spread in bitcoin’s price on some exchangesthe difference in the buy and sell pricesthat can make it slightly higher or lower than the market price.
The Crypto Market Is Bearish
Alkesh Shah, head of digital assets strategy for Bank of America, says cryptocurrency prices have come under pressure from three primary headwinds: high inflation, rising interest rates and recession risk. However, he says theres no need for long-term cryptocurrency investors to panic.
The market has corrected about 40% to 45%, and the media is writing as if its the end of the sector, that were entering a crypto winter, says Shah.
Instead, Shah believes most major cryptos are likely stuck in a trading range until the U.S. economic outlook improves.
Crypto could break out of its trading range for a couple of solid reasons, says Shah. The sector not only has assets with actual cash flows, such as Ethereum with $10 billion of transaction fees last year, but also were seeing major institutional adoption, he says.
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Its Basic Supply And Demand
Lets take the most popular crypto as an example: Bitcoin. To understand how bitcoin is valued, you have to understand the law of supply and demand. The supply and demand of Bitcoin play a big factor in the prices. Currently, there is supposedly a cap of 21 million Bitcoins. When that cap is reached, Bitcoin Mining will no longer create new Bitcoins. The supply of Bitcoin has reached 16.8 million in January of 2017, meaning that around 80% of the total amount of Bitcoin has already been mined and made available to the public. As we all know in general economics, the price goes up when the demand cannot keep up with the supply.
There are two types of factors that can affect this: Internal factors and External factors.
What Determines Cryptocurrency Price
As mentioned above, the balance between supply and demand determines the price of a cryptocurrency. But what influences its supply and demand? The answer is many factors, so we’ll list the main ones.
Factors influencing supply include:
- The volume of the cryptocurrency’s issuance and its duration. How much of a particular cryptocurrency hits the market every year? Does it have a limited maximum supply , or is it unlimited ? Obviously, the more of a particular cryptocurrency enters the market, the less each coin of that cryptocurrency will be worth.
- Burning coins. When large volumes of coins are burned, their supply is reduced, which has a positive effect on their price.
- Dumps. The sale of large volumes of coins by large holders negatively affects the price.
Factors influencing demand include:
- Cryptocurrency acceptance. The more actively any cryptocurrency is used in real financial transactions, the higher the demand for it is. The proliferation of crypto ATMs and an increase in the number of businesses accepting cryptocurrencies as a payment method have a positive effect on the price of crypto.
As you can see, there are quite a few factors that can affect the price of a cryptocurrency.
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The Future Of Ethereum
Despite Ethereums competition, and other factors contributing to its ongoing volatility, theres a general sense of optimism that the original smart contract blockchain will make it through this era of trials.
Ethereum has over 90% of the NFT market, said Arslanian. This is going to be a very important year for Ethereum, a kind of a make-or-break year.
There is good reason to expect a quick rebound from the current slump Ethereum is experiencing, Zannos tells NextAdvisor. What I think Ethereum has is that momentum of community that allows for a group of very smart people to create innovation and see new opportunities, Zannos says. At the core, my optimism is tied to just the versatility of what you can do with Ethereum.
Supply And Demand Drives Crypto Prices
Cryptocurrencies either have a limited or predetermined coin supplyalthough, with over 2,500 cryptos listed on hundreds of online exchanges, a number which is sure to increase over the coming years, its hard to generalise.
The process is more complicated than this, but when most coins are mined, the mining rate decreases so that the total supply is only replenished to account for lost units. If youre aware of basic economics, youll know that supply and demand determine prices. For the sake of our discussion, lets consider supply to be limited or highly restricted.
When thats the case and demand increases, the price of that underlying asset goes up. Roughly speaking, this is the simplest way to address how the prices of cryptos fluctuate.
Well go through the several factors that influence demand for a particular crypto, but before we do that, its important to note that cryptocurrencies dont fit comfortably into our existing asset categories.
Some security tokens are linked to an external tradable asset, and you can feel relatively comfortable assessing them as a more volatile relative of traditional shares, perhaps using a similar framework to the one youd employ for penny stocks.
Other tokens, known as utility tokens, are only meant to be used within the context of a particular network, so they cant even technically be classified as tradable assets in the same manner of security tokens.
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The Value Depends Largely On Popular Opinion
Investing in crypto-assets is highly speculative. The market value can fluctuate a lot over short periods of time, and is affected by things like media hype and investor opinion.
The price of crypto may depend on:
- its popularity at a given time
- how easy it is to trade or use it
- the perceived value of the currency
- its underlying blockchain technology
Understanding The Value Of A Cryptocurrency
Cryptocurrencies usually aren’t governed or backed by any central authority. Government backing can improve faith in the value of a currency among consumers, and it provides a big spender and collector of the currency. But since cryptocurrencies are generally decentralized, they derive their value from other sources, including:
- Supply and demand
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Bitcoin Price Prediction: The Future Of Bitcoin
The Saxo Bank thinks Bitcoin will increase a lot this year. Not quite as much as John McAfee does, but still a lot. Saxos Bitcoin prediction 2021: they say the Bitcoin price will rise above $60,000 in 2021! This isnt all they say, though. They also say the Bitcoin price will then crash and lose more than 98% of its value! Thats quite a rollercoaster.
Two Saxo Bank analysts said, Bitcoin will continue to rise and rise high during most of 2021 but Russia and China will together engineer a crash. They think itll crash because of new cryptocurrency regulations/laws from governments.
What You Need To Know About Crypto Investing
Early investors in Bitcoin, Ethereum and other cryptocurrencies have made a killing. But the cryptocurrency market has a long history of extreme volatility, which is not what investors are looking for in uncertain market conditions.
In fact, Bitcoin has had several deep pullbacks of more than 80% throughout its history, including a roughly 80% crash in 2018.
Like most other cryptocurrencies, Bitcoin is not tied to physical assets or intellectual property, and it doesnt generate cash flow or pay a dividend or interest to investors. Instead, Bitcoins price is tied exclusively to supply and demand, making it difficult to assess its fundamental value, experts say.
Berkshire Hathaway CEO and investing legend Warren Buffett recently discussed Bitcoins shortcomings at Berkshires annual investor meeting, telling investors he wouldnt pay $25 for all of the Bitcoin in the world.
Whether it goes up or down in the next year or five years or 10 years, I dont know. But one thing Im sure of is that it doesnt multiply, it doesnt produce anything, he said.
Bitcoin and other cryptocurrencies may eventually see their volatility and correlation to other risk assets die down. Still, the recent price action in the cryptocurrency market suggests the bumpy ride could continue for crypto investors in the near term.
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