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Why Does Cryptocurrency Price Change? A Complete Guide

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Since their introduction, cryptocurrencies have come to be recognized as one of the world’s most turbulent and erratic issues as people try to understand what they are. There aren’t many financial enthusiasts out there who haven’t tried to figure out why and how bitcoin prices vary.

Everyone wonders why cryptocurrency price changes, the market capitalization of cryptocurrencies, what the Coin Price Tracker will be, and how to turn market data into knowledge that will help them make profitable investments.

Let’s try to understand why the price of cryptocurrency changes in the market by comprehending bitcoin’s worth and how and why cryptocurrencies vary, even if the business has managed to make itself one that is very tough to evaluate in terms of cryptocurrency pricing movement.

This guide examines the causes of the constant change in cryptocurrency prices and the elements influencing them.

A Guide to Why Cryptocurrency Price Changes

The price of cryptocurrencies is erratic and changes frequently. This guide examines why they alter and differ based on the exchange you use. Let’s start by learning about some types of cryptocurrency and their market capitalization.

With a market cap of $441 billion, Bitcoin(BTC) is the most expensive crypto as of August 2022. The second most expensive crypto is Ethereum(ETH), which has a market cap of $201 billion.

Tether(USDT) is the third most expensive crypto, with a market cap of $66 billion.

Now let’s look at the main factors that affect price change.

Mass and Social Media

The media can have an impact on asset pricing and market-related considerations. A cryptocurrency may experience a fast rise in popularity, attracting mainstream attention. The token is then eagerly sought after by traders, which raises the price.

The inverse can happen. Traders may sell their positions before the price falls and lose money if they receive negative press.

Similar announcements by businesses and government bodies about accepting a specific cryptocurrency as a form of payment could cause the price of the underlying asset class to skyrocket.

While you cannot predict the nature of the update or how it will impact the price of your preferred asset class, you should stay up to date on the most recent news updates and developments across a variety of media outlets covering the cryptocurrency industry, such as Coinfomania, CoinDesk, Cointelegraph, etc.

Updates and Past Events

The price of bitcoin can fluctuate depending on several variables, including upcoming updates and past events.

Investors will be eager to buy the asset, driving up the asset’s price if the cryptocurrency is predicted to undergo a significant update that would bring greater characteristics, including improved efficiency and support across many markets.

A strong likelihood exists that the update will work in your favor if it is good; the opposite is true. But if the impending enhancements don’t seem to be ones that will encourage the token’s wide acceptance. In that case, investors will be obliged to sell the asset across different exchanges, resulting in its price falling significantly.

You can look at the cryptocurrency’s roadmap to see the next updates planned for the token to take advantage of these changes and events and thoroughly research each to determine if the price will be affected badly or positively.

Competition

When starting with cryptocurrencies, it’s critical to understand how your selected coin stacks up against its rivals because this will affect how broadly embraced the token is. When it is clear that a project does not match the standards of its competitors, traders will most likely sell off the token, which will have a negative impact on the token’s price.

You should take these two major inquiries to gauge a project’s marketability:

How many rival cryptocurrencies do your preferred one compete with, and what strategy is it employing to stay competitive?

The likelihood that your investors will widely adopt the plan will be constrained if there are numerous rivals. Whether people will still want to invest in the project depends on how the crypto creators want to seize market control.

Liquidity

In the world of cryptocurrencies, liquidating an asset entails exchanging it for fiat money (a national currency). However, the market and exchange will greatly impact how much money you get when you sell an asset.

One factor influencing liquidity pricing is trading volume. Trading volume can be considered the number of transactions performed in a day divided in half because there are two buyers for every seller. The number of shares (or cryptocurrency units) traded daily is called trading volume.

The trading volume for Bitcoin varies between exchanges, as you can observe by comparing them. Even yet, there are modest fluctuations in the price of Bitcoin among various exchanges.

Make sure to update yourself on the order book on every exchange. You might be wondering what an order book is.

An order book is a compilation of all live trading when a trader sets a price for their asset. It is important to do this because cryptocurrency trading is open daily and at all hours.

Everybody trading on the platform will be buying and selling cryptocurrencies at the prices they decided on at that very moment.

The order book won’t be as full if overall liquidity is low. Since the trading volume also decreases, this impacts the price of cryptocurrencies. Because of this, keep in mind that prices will fluctuate if liquidity is low.

Program Trading

Program trading uses computerized trading to take advantage of price differences between markets, one market would trade big blocks of equities, and the other would trade stock index futures.

You’ve discovered that Bitcoin is priced differently on different exchanges. Moving money or assets between exchanges can be inefficient because bots pounce on arbitrage opportunities, and the exchange fixes the price.

Market prices can endure longer than they would in a more efficient economy because it can be challenging for traders to arbitrage disparities. This is not an absolute statement because bots can impact program trading, but it is another occurrence that could ultimately impact exchange prices.

Cryptocurrency Fundamentals

The foundations of the project’s main objective are to assist you in determining if the cryptocurrency is overvalued or undervalued.

By looking at its fundamentals, you may determine whether a cryptocurrency has inherent value. Simply said, the basics of a cryptocurrency aid in determining its value.

Remember that this does not imply that you do not think cryptocurrencies will become more popular. Simply put, it indicates that you are a cautious investor and consider the factors influencing cryptocurrency’s short-term rise and fall.

Investors should read the token’s whitepaper to understand the asset before undertaking fundamental research to estimate the cryptocurrency’s intrinsic value.

Why You Should Invest In Cryptocurrency Despite its Volatility

You might think cryptocurrency is too volatile, so not worth the risk. Despite its volatility, it has advantages. Here are some reasons why you should still invest in cryptocurrency.

Owning Your Assets

Owning and storing your assets independently without the involvement of a third party is made possible by the fundamentally decentralized structure of cryptocurrency trading. Trading participants are free to benefit as much as possible from the current exchange rates because neither the exchange nor a middleman determines the value of the assets.

Freedom of Transaction

In contrast to most traditional banks, investing in cryptocurrencies gives investors a great deal of transaction freedom. Trompeter asserted that cryptocurrency and linked exchanges are simple to use and liquidate if you need cash.

Additionally, cryptocurrency is censorship-resistant so that anyone can send money around the clock without interference from outside parties.

You Acquire What You Purchase

Several tokens provide ownership and control of the commodity. This indicates that you are the product’s owner in addition to being a user.

Alternative assets are available now, which deviate from traditional assets in numerous ways. According to Kline, cryptocurrencies have the potential to be like the internet—foreign and unapproachable at first but unavoidably pervasive and necessary later on.

Portfolio diversification

Investing in cryptocurrencies can give you this exceptional opportunity if you’re seeking a means to diversify your portfolio beyond the traditional mix of stocks and bonds.

According to Chris Kline, COO and co-founder of Bitcoin IRA, the desire to invest in cryptocurrencies to diversify portfolios, especially retirement portfolios, has increased. This is probably because of the optimistic nature of its customer base and the expectations around the expansion and growth of digital assets in the short- and long-term.

It’s quickly turning into a requirement for a modern portfolio to have at least some exposure to cryptocurrencies, according to Kline. “Cryptocurrency can provide diversification and a different course of action for people of all ages when confronting the current economic instability.

Final Thoughts

This guide is by no means a complete list of the factors that affect how cryptocurrency values vary between exchanges. Proper and extensive research about cryptocurrency and how to invest in them will help you make good decisions about cryptocurrency.

Make sure to conduct your study before making judgments if you want to start trading cryptocurrencies.

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