There are many factors that affect the value of a cryptocurrency, but two of the most fundamental are the law of supply and demand. In short, if the supply of a cryptocurrency is limited, then the price will go up. If the supply is unlimited, the price will be lower than the demand. When demand outstrips supply, the price will go up. If the opposite is true, the price will go down.
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A large part of a cryptocurrency’s price fluctuation comes from its users. People who are actively trading a currency will influence its value a great deal. For example, when Bitcoin’s price doubled, more people would be able to use it as a currency. Other factors that affect cryptocurrency prices include the popularity of a specific coin. Likewise, when a cryptocurrency is accepted by more merchants, the demand for that particular coin will increase.
One of the key factors driving the price of a cryptocurrency is its volatility. Because cryptocurrencies have no real cash flows, traders rely on the sentiment of the market to drive its price. For instance, recent events like the IPO of Coinbase have helped drive a positive sentiment. While the price fluctuation isn’t unprecedented, it should not influence a long-term investment plan. Before you invest, make sure that your emergency savings and retirement account are fully funded.
One of the biggest reasons a cryptocurrency price drops is because of negative media attention. A cryptocurrency’s value can crash if the price of a major fiat currency suddenly drops. Conversely, a currency can rise in value after a popular figure like Elon Musk or Vladimir Putin gets involved in the crypto market. These factors are all important, but there is no definitive answer to the question of what makes cryptocurrency go up and down.
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