Cryptocurrency markets and how prices are determined
CRYPTOCURRENCY MARKETS AND HOW PRICES ARE DETERMINED
Cryptocurrency prices swing up and down very easily. This price fluctuation is known as volatility and can lead to massive gains, as well as heavy losses. Over time as the market matures; it will become more stable as liquidity increases. Here are some of the factors that influence the price swings of cryptocurrencies.
Limited supply: most cryptocurrencies are created with a fixed supply which naturally creates scarcity, unlike fiat currencies that are unlimitedly printed by central banks.
Demand and supply: this one is a key factor of volatility. Once people realize that the price of a particular cryptocurrency is going up, they tend to buy it more which leads to increased demand. At this point, sellers are unwilling to sell for lower prices. Demand for any cryptocurrency is usually determined by what it intends to solve. The limited supply also means that the prices are bound to rise over time. A lack of demand for a particular cryptocurrency could, in the same way, drive the price down.
Speculation: Most cryptocurrency prices are driven by mere speculation as opposed to concrete evidence of utility; this is because crypto is still relatively in its early stages and yet to garner mass adoption.
Security issues: cases of fraud or security breaches on wallets, crypto exchanges could lead to loss of funds, in turn causing a negative stir in the crypto market. This could cause people to sell off, crashing the prices.
The media: the media influences almost every sector of life. Prices of cryptocurrencies increase when they convey positive news about adoption and the crypto industry as a whole. In the same way, bad news negatively affects prices.
Mass adoption: currently, only a handful of the global population trade cryptocurrency or even knows about it. Prices will increase alongside mass adoption which will eventually happen.
Market manipulation: the crypto markets can be manipulated by individuals or a group of people who have a large amount of a particular cryptocurrency. Their market actions influence the price of such cryptocurrency.