What determines the price of cryptocurrency?

30.11.2022 17:08

(Moscow time)

The cryptocurrency market is once again bearish: over the past year, market capitalization has fallen from $2,5 trillion to $900 million (a 64% drop). Skeptics have become more active, again shouting with one voice: “Crypto is everything!” But the paradox is that the number of open crypto wallets is only growing, and has already exceeded $1 billion - the figure is impressive, isn’t it?

It's time to figure out digital assets that can already be used to pay for goods and services. In addition, a correct understanding of price movement allows traders to make good money on the difference. The age-old rule works: “Buy cheaper - sell more expensive.”

Source safetradebinaryoptions.com

Let's look at the main factors influencing the cost of digital assets in order to have a basic understanding of price formation in the crypto market.

What determines the growth of cryptocurrency?

The main characteristics of digital assets are decentralization, anonymity and transparency. The cryptocurrency rate is not regulated by central banks, government agencies or any other companies. The price is always formed depending on the ratio of demand to supply. Here are the main factors driving the value of a digital asset upward:

Growing demand. It is logical that increasing demand has a positive effect on the market as a whole. When buyers are interested in accumulating cryptocurrency, they take it at any price, and sellers, accordingly, gradually raise it. The following factors depend to some extent on this basic one.
Market manipulation. Large holders of cryptocurrencies (whales) benefit from the price jumping back and forth, but under their clear guidance, so they are not averse to manipulating the market. Manipulations come in a variety of forms – from purchases/sales of huge sums to influence through social networks. And here let’s remember the story where Dogecoin, Reddit users and Elon Musk teamed up - a joke coin then made its holders millionaires, soaring several dozen times.
News background. The release of news that is significant for the market can affect the growth of an asset, but only if the news is positive. For example, Bitcoin has become an official means of payment in El Salvador or the ban on the use of digital assets has been lifted in India. The news background can be predicted in advance if you follow the situation and monitor its development.

When you open or close a trade, keep three main factors in mind. Depending on the situation, they lead to market growth or decline.

Note! Factors that rise or fall do not necessarily apply to the entire market; they can also affect a specific asset. For example, the news background may be related to a specific cryptocurrency (a major deal has been concluded or an asset has been added to the portfolio of an investment fund).

What determines the price of bitcoin?

In the case of Bitcoin, the top and first cryptocurrency by capitalization, which affects the entire market, the listed factors are also important, but market manipulation is no longer felt in the same way. You can also indicate additional points that are important for the price of BTC coins:

Bitcoin mining cost. New coins (previously locked) are paid to miners as rewards. The cost of mining differs, but there are popular destinations (Kazakhstan, Georgia, China, USA) by which the miner’s earnings are determined.
Number of coins in circulation. The maximum number of BTC coins is 21 million. At the moment, 19,2 million coins have already been mined. The fewer bitcoins remain “in the depths”, the higher its value. Hence the comparison with gold. There is a shortage in the market. And, according to various estimates, about 5 million coins are lost forever (passwords for crypto wallets are forgotten/thrown away).

Bitcoin itself has a significant impact on the entire crypto market as a whole. Its dominance (Bitcoin dominance) is 37,8%. This means that 37,8% of the total capitalization (almost 22 thousand assets) is accounted for by BTC. Professional traders even have a “cheat sheet” on how to react to changes in indicators in the cryptocurrency market. There are 6 possible scenarios:

Bitcoin Dominance is growing, the value of BTC is rising - altcoins are falling.
Bitcoin Dominance is growing, the cost of BTC is falling - dump of alts (sharp drop in price).
Bitcoin Dominance is growing, the cost of BTC does not change – alts are in a flat (the cost does not change or changes slightly).
Bitcoin Dominance is falling, the cost of BTC is growing – an altseason has been recorded (explosive growth in the price of altcoins).
Bitcoin Dominance is falling, the cost of BTC does not change - alts are increasing in price slightly.
Bitcoin Dominance is falling, the cost of BTC is falling - alts are in a flat (the cost does not change or changes slightly).

Using this guide, a trader can open or close transactions in the cryptocurrency market.

Bitcoin rate from the very beginning

On the Coinmarketcap chart, the Bitcoin rate has been displayed since April 2013 and the initial value there was $134, but the first cryptocurrency appeared back in 2009, and then one BTC coin cost less than a dollar.

Everyone remembers the famous pizzas for 10 thousand bitcoins. Bitcoin Pizza Day is even celebrated on May 22, when all failures seem light compared to buying a pizza for 82 million dollars (at the current exchange rate, of course).

Source safetradebinaryoptions.com

There have been several bearish pullbacks in the history of Bitcoin:

2011. In 163 days, the price of the cryptocurrency rolled back from $29,38 to $2 per coin.
2013 – 2015. The bearish cycle lasted more than 400 days and brought Bitcoin down from $1 to $200.
2018 – 2019: This bearish cycle lasted even longer and the value dropped from $20k to $3.
2021 – 2022. After a historical high of 68 thousand dollars, the price of the BTC coin is trading around $16.

History shows that bearish cycles always end in bullish rallies, but the decision to invest or exit is up to everyone to make.

Bitcoin rate at the moment

To follow up online cryptocurrency rate, there are several effective services. For example, a simple and convenient currency converter Safetradebinaryoptions. At the time of writing, one bitcoin cost $16.