What Affects Crypto Coin Prices?
Cryptocurrencies are digital funds that function online and have no physical form. Like traditional money, crypto assets can be used for payments, transfers, trading, investments, etc. Similarly to how we hold cash in our pockets, crypto coins are kept in online digital wallets. Such wallets are personalized and have several layers of protection.
Today, crypto is accepted as a payment method in many shops, restaurants, travel firms, software services, etc. However, crypto adoption is not yet that widespread in our everyday life, but the main application of digital coins is investments and trading.
The cryptocurrency market is highly volatile, and it is hard to control its movement. Of course, large investors (which are also called “whales”) can turn the market in the direction they want by massively selling coins one day and causing collapse and price drops to buy assets at low rates later. But basically, the main factors that determine crypto prices are not connected with anyone who just has the authority to rule it. For example, crypto exchanges rates do not depend on governmental decisions or central banks. The emission of digital coins is not on the part of the government, and it is impossible to issue more coins artificially.
The main indicators of every digital asset are:
- cryptocurrency price;
- market cap;
- trade volume.
How Does Market Cap Affect Cryptocurrency Price?
Crypto market capitalisation indicates the asset’s dominance in the whole market. The bigger the cap, the higher the position in the crypto ranking. Capitalisation is a cryptocurrency price multiplied by the number of crypto assets in circulation, and it shows the total value of all the coins released.
Many people think cryptocurrency price is the only indicator determining its value. However, only market capitalisation shows us the complete picture of an asset and how much it competes with other crypto assets. That is, the market cap is a more comprehensive term than price.
There are:
- Large-cap coins (with capitalisation over $10 billion). Examples: BTC, ETH, BNB, USDT.
- Mid-cap ($2 – 10 billion cap). Examples: ADA, DAI, MATIC, DOT.
- Low-cap ($300 million – $2 Billion). Examples: XLM, APE, ALGO, NEAR.
The bigger the capitalisation indicator, the more resistant the asset to market trend changes, thus, the less volatile it is. It is recommended to buy both large and low-cap coins.
Large-cap assets are good for long-term investments, so you buy BTC, hold it until it reaches its all-time high, and sell it. Or you purchase less-known tokens in small portions. One of them will definitely skyrocket during the bullying market trend, so you will multiply your investments. Low-cap coins are more sensitive to every market fluctuation, so they are more likely to multiply their price.
What Else Influences Cryptocurrency Prices?
Let’s see what influences cryptocurrency prices. Here is the list of factors:
- News background. Since the cryptocurrency market is still young and emerging, it is unstable and reacts to the news background. For example, the news about the FTX exchange bankruptcy caused panic in the market and led to massive funds withdrawals. On the other hand, a positive tweet by Elon Musk about a meme coin causes its price to jump and creates buzz around it.
- Supply and demand. Like in any traditional market, the demand and supply ratio is crucial in the cryptocurrency market.
- The trend. There are bullish and bearish market trends. Overall investors’ sentiments in the market drive the whole industry up or down. They start to sell out crypto, causing a snowball effect, or, on the contrary, buy crypto encouraging demand growth.
- The overall situation with the world’s economy. It includes crises, wars, inflation and other factors on a global scale. Of course they impact the ability of people to invest.
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