Crypto just like other major entities of values can be price-changing on different occasions which are affected by a handful of factors that will be thoroughly discussed in this article. First, cryptocurrencies are used as a medium of exchange, and stores value, and are gaining vast popularity by the day. With this, the effect of supply and demand can have a very impactful effect on them causing constant hikes and reductions in their rates.
The law of demand and supply is an old economic strategy that tends to analyze the relationship that exists between supply and demand forces over a product of value. As a result, price fluctuations are unavoidable When a coin, such as a cryptocurrency, is in short supply or high demand, its price rises. Those looking to buy must be willing to compete with ever-increasing prices. However, if a cryptocurrency is in high supply and low demand, its price falls, and people may take advantage of the opportunity to buy more.
Why Is Cryptocurrency Volatile?
Cryptocurrencies are designed to be volatile. Since its inception, the cryptocurrency markets are highly speculative, and there is no established regulatory framework for their trading pattern. As a result, cryptocurrencies trade at a more volatile rate than any other financial entity. Depending on the investor’s perspective, this unpredictability can be a good or a bad thing all at the same time. For example, if you bought Bitcoin at $20 in 2012 and held on to it until it reached $20,000 in 2018, you would have made a 1,000x return.
How Does Cryptocurrency Gain Value?
On exchange platforms, cryptocurrency can gain value. Its value rises as a result of supply and demand. The supply of a cryptocurrency is determined by how many new coins are mined and how many existing owners wish to sell their coins. Many factors influence cryptocurrency demand. The value of the coins will determine how much demand there is for them. This means that if the crypto monetary system functions well (i.e..fast transactions and low fees), smart contracts become more common, and more businesses begin to accept crypto, demand for crypto will rise. Furthermore, there is a growing demand for cryptocurrencies as a store of value investment which makes it more expensive to acquire in this period.
Factors That Make Crypto Rise in Price
Crypto buyers have a hand in the increase of the prices of crypto coins. While this might be hard to see, the fact remains that the rate at which demand and supply of the public affect crypto could be alarming in most scenarios. Some of the factors that affect the rate of demand and supply are;
1. Mining of Crypto
The majority of cryptocurrencies are created through the mining process. In cryptocurrency mining, a group of computers competes to solve a simple but inefficient equation in the hopes of earning a cryptocurrency reward. This mining process, known as ‘proof of work,’ currently consumes a significant amount of computational power, time, and, by extension, electricity.
Because, as we all know, electricity is not free, there is a cost associated with this process. There is also an ongoing need to upgrade computer hardware, chips, cooling mechanisms, and support infrastructure to ensure that you have the most up-to-date equipment available. To put it another way, if you spent $1000 setting up the hardware and $4000 on electricity to mine a single bitcoin, you’re unlikely to sell if the current market price is less than $5000.
If you take this basic principle, factor in different energy and hardware costs, project it globally and then take the weighted average of how much it costs to mine a single cryptocurrency (for example, bitcoin), you’ll have a good starting point for where miners are unlikely to sell below.
- How Crypto is Mined
For you to mine a cryptocurrency you will need a cryptocurrency wallet as long as mining software and a handful of skills before you begin to successfully mine cryptocurrency. It is very important that you have most of this equipment both physically and intellectually so that you can record a great deal of success in your mining journey. To mine cryptocurrency especially Bitcoin you may need some hardware computer equipment that consumes a huge level of electricity to get the work done.
2. Buying Low and Selling High
The most important rule in trading and investing is to “buy low, sell high.” To make a profit, we buy an asset when the price is low and sell it when the price is higher which applies to cryptocurrency as well. Some people define “selling high” as a 10% return, while others define it as a 1000% return. In either case, investors hope to make a greater profit than their initial investment.
The crypto buys low sell high strategy entails purchasing Bitcoin or an altcoin at a low cost and selling it at a high cost. For example, if we buy Bitcoin at $20,000 and sell it at $60,000, we have purchased low and sold high. However, this tends to contribute to how expensive crypto could be. Unfortunately, this happens almost all the time.
- How To Buy Low & Sell High
This is one of the quickest pieces of advice that is given to those new to the game. Although cryptocurrency experts also adopt this method. But it is usually advantageous when as a cryptocurrency trader you buy cryptocurrencies when the price goes down and sell them when the price comes up to make a very huge level of profit.
3. Increasing Utility in Crypto
This pertains to the publicity which crypto has gained with different institutions. Once lots of firms and institutions begin to make use of crypto coins as a medium of payment and in the settlement of bills, demand for Crypto will increase and this will automatically the rate at which crypto can be acquired.
4. Public Over Hype
One of the primary contributors to cryptocurrency price fluctuations is speculation and hype. When a new cryptocurrency is launched, there is usually a surge of excitement as people learn about it for the first time. This frequently leads to a rush to buy and sell the new coin, driving up the price to unsustainable levels.
When people believe the coin is overvalued and lose money on it, the hype and speculation die, resulting in a price collapse to the lowest level. It’s not uncommon for cryptocurrencies to experience massive spikes followed by crashes. Crypto price swings are also influenced by influencers and celebrities who cause this type with their influential status, thereby convincing most people in most situations. A typical example is what happened to Dogecoin. Dogecoin instantly dropped 91% after Elon Musk appeared on SNL in May 2021.
Actions To Take When Crypto Rises
When Crypto rises, it can be considered a total flop. A few advantages are attached which smart Crypto traders can instantly in effect to raise their chances of making a profit from the process rather than bearing all of the loss as most people always do. Take the following steps in situations whereby crypto is at its highest.
- Sell Your Crypto to Make a Profit
One of the best things you can do when cryptocurrency experience a hike in price is to begin to sell the little cryptocurrencies you have before the price increases. This is why trading experts often tell newbies to gather as many cryptocurrencies as they could when the price goes to its lowest point. If you have been careful enough to take his advice I think it is time to reap the fruit of your labour.
- Don’t Buy Crypto at This Time
The second observation and action to take in this kind of situation used to keep your purse closed. Ensure that you do not buy any sort of cryptocurrency in a situation whereby people are clamouring for a hike in the price of a cryptocurrency. it is a simple law of demand and supply. “The higher the price the lower the quantity demanded and the lower the price Be higher the quantity demanded”, says the law of demand and supply. With this action properly taken, I believe you’ll be one of the safest cryptocurrency owners at such a moment.
Actions To Take When Crypto Falls
Both the fall and rise of crypto come with their benefits depending on how smart and efficient we handle the situations. Without further ado, here are just a few things to note when Crypto loses its price. We can take these steps to both our advantage and reduce risk.
- Buy Excessive Crypto
As I have said severally in this article cryptocurrency is bound to fall when there is a lot of cryptocurrency being sold out at massive levels in the same period. This means supply is exceeding demand by a very large margin and this serves as an opportunity for those willing to venture into cryptocurrency to buy as much as they could. The logic is simple just wait for the perfect moment when cryptocurrency will increase again and then sell to make a mouth-watering profit.
- Don’t Sell Your Coins
Except you need money urgently it is not advised that you sell your crypto coins in such a situation like this. This is because you may not make up even the amount spent in buying such coins. Situations like this are often controlled by excessive supply which supersedes demand. If you are not in any kind of economic downside, ensure you keep your coins till the period when it appreciates so you can sell to make the highest profit.
The game of cryptocurrency could be very tricky, especially for those new to the industry. The price at which it is sold, the rise and fall in cryptocurrency, and other unforeseen circumstances are what make it even more complicated. However, it is advisable to take your time to analyze the factors that contribute to this never-ending volatility, without this, you may find Crypto as unpredictable as ever!