Knowing where crypto price waves are headed next is not always easy for any trader given all the volatility. Yet it is the killer game for profitable trades whether you are using guess work or technical analyses. Volatility is itself evidence that there are different factors affecting prices in an irregular manner. And, volatility is not always a bad thing, and here are factors you should always have in mind when trading cryptocurrency, because they almost always interplay to affect the prices and even force a market crash.
Having these factors in mind is important because they affect the overall trends of markets as well as individual cryptocurrencies -- even when using technical analyses, the analyses might not work for instance if there is market manipulation going on or due to effects of insider trading.
It is recommended to use these factors alongside technical analysis to try and estimate price movements.
Most cryptocurrencies -- like other stocks -- also tend to have their prices fall and rise depending on the kind of news in circulation and attitude of public to those information. In most cases, prices are likely to change following some news of upcoming software releases and upgrades (testnet, mainnet releases etc), changes in teams, and even collaboration or partnerships between or among various companies. This constitutes largest portion of the positive news that is worth your time even though most announcements are geared towards achieving this and are rarely true. Rumors also does affect prices.
Nevertheless, market news are unavoidable thing for influencing prices because cryptocurrency projects are always evolving -- everyone is doing something to improve his project -- and the fact that these developments will affect sentiments (which is the perceived value of any given cryptocurrency). Notice that this perceived value is a real great determinant of cryptocurrency prices.
Sentiments can either be positive or negative and can be true or as a result of mere false manipulation. Reports of hacks and infighting teams can, for instance, negatively affect the price of cryptocurrency.
By subscribing to cryptocurrency news sites and blogs and following lead teams and people on social media and other places, you should be able to get these kind of news even as early.
Besides, that, you can actually use our recommended tools for trading social media buzz to estimate what would happen to crypto prices.
Besides the hype and fud which is characterized by fear, uncertainty and doubt, there also is optimism and hope. The attitude of the public towards the information and news etc and their assessment on how value could be affected will certainly determine whether there will be fear or hope in a cryptocurrency.
Of course, optimism, fear and uncertainty is majorly a rebound effect of behavior of market participants affecting each other with intuitions and analyses. For instance, in a hype cycle, the peak of hype is followed by trough of disillusionment. This is usually because many people will have usually bought into the hype and acquired coins before prices then drop massively.
Market sentiments affect the cryptocurrency markets because it is a very small space.
Regulation, politics and power bottle necks
Regulation can affect a single cryptocurrency price or have market-wide effects on cryptocurrency prices. That effect can either be positive or negative. For instance, although regulation in 2017 was largely perceived as one that could have negative effects on prices, the result was increased publicity that fueled meteoric price rises to the tune of more than $20,000. Unfortunately, that increase in price was short-lived.
The crypto bans in some countries led to decline in prices. Most countries have been adopting or preparing regulations that came with or is having negative effects in terms of how far prices have gone and are at the moment, whether they were/are targeted at banking institutions, registration of users or, AML regulations, etc. In most cases, these regulations are, as said, targeted at dealing with money laundering and cyber crime, as well as taxation issues.
Mostly, current crypto regulation has led to reduction of market-making liquidity, which has made price discovery process worse amidst fear and panic among traders, whether you are talking about restrictions on banks in various countries or just reduction of market-making activities as a result of disruption related to regulation -- closure of exchanges, internal investigations of crypto exchanges, ban on crypto trading in South Korea e.tc.
Moving forward, regulation -- at least within the current settings of a thriving cryptocurrency industry -- can affect prices, although the impact with which this is currently happening has greatly reduced. Most announcements have very limited impacts on prices today.
Again, not all that is regulation is without ill intentions. Apart from manipulation of prices by cryptocurrency communities, groups and individuals, manipulation of prices in the excuse of regulation is also a reality, made worse by politics. So it is worthwhile checking these.
Market manipulation is a calculated effort by teams and individuals to spread false news (or extra emphasize true news) in order to cause hype and lead many people into wrongly believing or estimating that the value of a cryptocurrency is rising. This include by means of fake tweets and announcements.
Commonly known as pumping, the practice can start covertly by monitoring all cryptocurrency prices to ensure they do not rise uncontrollably.
Although it is done in a number of ways, pumping relies on the basics of supply and demand though irregularly. One of the ways of pumping is to force a price surge by creating an artificial shortage of coin. For instance, that could occur when false information creates interest of a cryptocurrency among many people and hence creating demand.
Of course, not all price manipulation is wrong or illegal since then, every effort by companies to market themselves with the intention of increasing price of stock or asset would also be termed as manipulation. Pumping a coin is the desperate manipulation of prices without an accompanying increase in value that would sustain that price or an effort to create false sentiment about an asset to increase its price or value. Therefore, rumors are part of a manipulation. Rumors affect cryptocurrency prices greatly.
It is believed that the current market correction is as a result of the end of last year's hype. Of course, one can be in the "right" end of manipulation and gain from the pumps for as long as you are able to properly look for and know the signs of an upcoming pump -- and there are thousands ways you can do that including the tools mentioned above. You can also use online tools that allow you to monitor percentage increases of cryptocurrencies per minute -- these will list coins which have attained a certain percentage increase within shortest period, for instance 5 minutes.
Plus if you are doing a trade hype, make sure you trade out long before the hype can cool off.
Huge sales and purchase of Bitcoins
Momentary trends such as the selling of a large number of Bitcoins by Mt. Gox trustee and the selling of huge amounts of Bitcoins just as Bitcoin futures contract was expiring (which many of them shorted) have caused mass fear and doubt especially to new comers in the market, leading to drops in prices.
Under normal circumstances, large sales do not happen through exchanges but over the counter in order to avoid huge price declines. This is because such a sale would affect liquidity directly on an exchange. A purchase of large amount of Bitcoins would also trigger a shortage sending the prices up although these effects can be limited to a given exchange.
Although such events are untimed, it is possible to use tools such as those that track these addresses and stay informed before a drop in prices once the sale happens.
Apart from that, the different internal factors that affect price of a cryptocurrency include the adding of it in one or more exchanges which increases demand and wallet improvements in addition to an extending ecosystem such that it continues to attract more dapps and devs.
Competition among the cryptocurrencies themselves is a factor that can cause rise and fall of individual cryptocurrencies but is unlikely to cause market crash for entire cryptocurrency unless it is so high that some coins are forced to exit market.