Volatility is one of the main features of cryptocurrencies. Currency prices change rapidly, making crypto investments exciting and scary. If you’re new to investing, understanding the factors that determine crypto prices can help you make better investment decisions to build a solid and profitable portfolio. This article reviews four common factors that affect crypto prices and shares tips for successful investments.
4 Factors that Determine the Price of Crypto
Crypto prices don’t fluctuate by choice. In fact, all crypto project owners desire stability for their projects. The popular volatility of crypto is usually influenced by some key factors, including market forces and economic principles. Below are the top four factors that affect crypto prices today:
Market Capitalization
Market cap is the total market value of all coins in circulation. This value is obtained by multiplying the value of a single coin by the number of coins in the market. The higher the market capitalization of a coin, the more expensive that cryptocurrency is.
Cryptocurrencies with a larger market capitalization are also relatively more stable than others. Nevertheless, they are also affected by the volatility of the industry, influenced by other market factors.
Demand and Supply
Demand and supply are the most popular market forces that affect every product in all industries, including crypto. Following economic theories, prices increase with increasing demand and decrease with an excessive supply of products.
Similarly, the price of a cryptocurrency or product will increase when there is an increase in demand. This is especially true when the currency or product is in limited supply.
Regulations
Regulatory changes and policies, whether positive or negative, affect crypto prices by impacting investor and consumer sentiments. Such announcements encourage stakeholders’ reactions that affect crypto prices.
Regulations can impact crypto prices in two ways. First, crypto restrictions, strict regulations, and bans reduce accessibility and increase negative sentiment, leading to a decline in crypto prices.
In contrast, positive actions such as recognition, legal status, and regulatory approval and guidelines increase the price of crypto. Changes in these regulations and their presentation in the media can impact crypto prices and lead to fluctuations.
Production Cost
Like every product, the cost of producing cryptocurrencies and products affects their prices. Many assume that these digital products cost nothing to produce, but this is not true.
To bring new cryptocurrency coins into the market, miners use specialized computers to mine these coins. This impacts the cost of production, which varies from one coin to another. The higher the production cost of a coin, the higher its price. Price fluctuation may occur due to changes in production costs.
Tips for a Successful Crypto Investment
A good understanding of what affects the price of crypto can help you choose the best assets and make good investment decisions. However, this information alone is insufficient to ensure a successful investment. This section shares some effective tips for a successful crypto investment.
Invest in Stable Coins and Assets
Despite the volatility of the crypto industry, some coins and assets have proven relatively stable over time. It is best to invest in such assets as a beginner in crypto investments.
Diversify Your Portfolio
Many young investors fall into the trap of putting all their eggs in one basket. They use all their capital to buy a single relatively stable asset. This is a poor investment strategy; the crypto industry is highly volatile and can affect any asset at any time.
It is best to diversify your investment portfolio to optimize risk management. Consider buying different crypto assets, including coins, ETFs, and crypto mining stocks.
Trade on a Reliable Exchange Platform
Trading on a reputable exchange platform enhances your chances of success in cryptocurrency investing. Good trading platforms, like Kraken, offer advanced trading features such as option contracts, margin trading, and futures.
Besides these tools, they offer the best asset prices and prevent scams. For instance, Kraken’s XRP prices reflect the industry standard, allowing investors to buy and sell coins at the best price.
Endnote
To succeed in crypto investing, investors must learn to deal with market volatility and asset price fluctuations. Several factors like demand and supply, regulations, and market cap affect the price of crypto. Despite the volatile market, you can invest successfully by investing in stablecoins, diversifying your portfolio, and trading on a reliable platform.
