Yet another end of Cryptocurrency? What influences the market now
Most cryptocurrencies have seen their growth slow down in recent months. The prices of Bitcoin and major altcoins have leveled out at a point well below their peak prices. While some investors take this as a sign that the market is starting to mature, others see this trend as disconcerting. The situation surrounding cryptocurrency is not what it was a year ago. This also means that the factors that influence the market have changed, although some factors are enduring and will always affect cryptocurrency performance. Here are some of the major factors influencing the market right now.
The price of Bitcoin influences the prices of all other digital currencies, as well as the crypto market itself. One reason is that Bitcoin is used to buy altcoins and you can easily check it by visiting any cryptocurrency exchange out there. Not only is it the most popular digital token, it is also an intermediary used to convert between currencies. Usually, if the price of Bitcoin increases, the prices of altcoins are also going to rise. Likewise, if the price of Bitcoin goes down, the value of most altcoins will fall.
Since Bitcoin has been fairly stable, it’s not surprising that this has caused the growth of other altcoins to slow down as well. The effect is going to be severe on newer cryptocurrencies. Less established altcoins are the ones that are most likely to use Bitcoin as an intermediary currency.
A cryptocurrency is only as valuable as it is useful. If a cryptocurrency can’t be applied to make purchases at stores, restaurants, bars, etc. that people frequent, or it does not have other use cases, not many customers will want to buy tokens. In addition, some cryptocurrencies have applications that only a select group of people will find useful.
One reason the crypto market might be growing so slowly is that the utility of major cryptocurrencies hasn’t been enhanced much recently. When a cryptocurrency gains utility – for example, if a major retailer adopts it, the token is going to become more valuable. Bitcoin and similar currencies have not experienced as wide of acceptance as many people thought they would be by now.
Supply and Demand
Supply and demand is one factor that will continuously affect the crypto market. All crypto coins have a cap to how many units can get into circulation because a currency with unlimited supply has no value.
Some cryptocurrencies have larger supply than others. Others like Bitcoin have very limited one. The impact of supply and demand will be greater the closer the given cryptocurrency gets to reaching its cap. You can anticipate that this will have a large impact on some of the older cryptocurrencies as they move towards their supply limit.
While some countries have stricter regulation than others, overall, the governmental grip is fairly loose right now. There are both advantages and drawbacks to this. Many investors want the market to have limited rules and regulations because it allows for more freedom and anonymity. Yet, a lot of people thrive on structure. When it comes to the general public, they want an established framework to operate in. In addition, people are more willing to put money into something that has the backing of a government, assuming the government offers protections. The lack of regulation does make cryptocurrencies attractive to some investors, but it has kept the general public from truly embracing the crypto market.
One problem is that the decentralized nature of cryptocurrencies makes them harder to regulate than centralized assets. It is harder to enforce rules and regulations. Generally, when regulations are amended, it is going to have an impact on the market, for better or worse, though you can’t always be sure how investors are going to react to the change.
When the team behind any cryptocurrency makes a major announcement about a new technological development, or when that development comes into being, the performance of the cryptocurrency will likely improve. This is because the new technology will make the cryptocurrency more competitive against similar currency options in the eyes of investors. Perhaps, the new technology will appeal to a new audience that the original product did not appeal to. In contrast, when a competitor makes a technological development, it is going to decrease the value of the cryptocurrency in question.
If major technological developments are happening across multiple cryptocurrencies, it will likely have a positive effect on the overall market, especially if those developments are being made by major names like Bitcoin or Ethereum.
Another thing that will influence the cryptocurrency market is mining obstacles. For instance, if a whole country imposes an outright ban on cryptocurrency mining, this could affect dozens of miners because they will have to find a new place to set up operations. Mining requires a lot of power, so anything that makes the process more difficult is going to affect the value of a cryptocurrency. Moreover, it can go both ways. If a token is challenging to mine, it can make it rarer, and therefore more valuable. Yet, if the challenges are so big that they deter miners from issuing the tokens, the value can actually drop.
While no one can say for certain whether the cryptocurrency market will continue to experience slow growth or the volatility that the market is known for will re-emerge, understanding what affects the market and the prices of cryptocurrencies is the first step in making accurate predictions. It is entirely possible that if the utility of major tokens increases, new technology is introduced, or the regulatory framework becomes solid enough to appeal to more people, the cryptocurrency could start to experience the same rapid growth it experienced at the end of last year.