A STUDY OF THE FACTORS AFFECTING THE DIGITAL CURRENCY MARKET

“If you don’t find a way to make money while you sleep, you will work until you die”. – Warren Buffet

The cryptocurrency market has continued to go up the ladder ever since it was introduced to the world. It has attracted the attention of many people and is continuing to gain popularity. The most popular cryptocurrencies have grown tens and hundreds of times their original value in just a few years. The digital currency market has always proven to be extremely volatile. You can make a fortune in a moment and lose it the next. Fortunately, the market as a whole is much more profitable than it was  a few years ago.

Many new investors are setting foot into the digital currency market, but there are a significant amount of risks involved. The market may correct 50-70% in just a few days and inexperienced investors can suffer huge losses. So one should always consider the factors behind the volatility of the market and how these factors can affect the prices.

Let us go through some of the basic factors that affect the market :

News

The media has the power to manipulate the public. Any news feed can create panic or excitement in a moment. The direct impact of news is perfectly reflected by many high profile events in the world. Recall the situation when China banned the ICO authorities in September 2017? The news created such a havoc that the price of Bitcoin collapsed from $5000 to $3000. This factor is applicable to short term forecasts.

News can be categorized into two zones; political and systemic. For example, the latest turmoil in January with the Chinese and the South Korean exchanges led to another collapse of bitcoin and altcoins, whereas NEO continued to rise against the backdrop of positive news from China. This event can be referred to as political sources. On the other hand, systemic sources imply innovative changes in the operation of one or another platform scaling in the market. So, it is important not only to follow the latest developments and news in the media, but to also take into account how news can be used for price manipulation.

Regulations
One factor that can immensely affect the crypto-market price is the regulations. Now as the central banks and governments are beginning to catch up with the cryptocurrency markets, the need for introducing more complex rules is building up. The tougher the rules, the bigger the chances of a price drop.

Technological Progress
As the market demand increases, one cannot ignore the technological aspects. The need for independence, anonymity, security, fast and cheap transactions lay a solid foundation for the development of the digital market. Technological advances will make life easier not only for ordinary people but it will also make businesses more efficient and transparent. If the regulatory system is brought under control, the market will continue to march confidently towards a new economic system. The results of such transformations are impossible to predict: the transformations could lead to a complete failure or an innovative breakthrough in technology and economics.

Political Factors
A serious political situation can destabilize the crypto market. When South Korea announced the closure of the crypto exchanges, it led to a collapse in the market. But it should be noted that news is not always relevant and does not always reflect objective positions. Political regulation can affect the crypto market, provoking a global outflow of funds. China’s ban on mining is an example of such a situation. The mining in China occupies a large share in the total number of pools. Therefore, a  significant amount of capital is concentrated here, which can affect the market balance and lead to long term delays. It should also be understood that sometimes regulations can also mean good and positive news for the market development.

Economic Factors
World financial instability shakes the trust in fiat currency and urges the investors and the people in general to think about alternative currencies. The digital currency market is young and vulnerable. Volatility has  a negative impact on the recognition of cryptocurrency as a mode of payment. Inspite of the fact that technology has improved and the financial transactions are simplified, many areas still continue to remain the same: centralized management, restrictions and complexity in conducting micro transactions etc. The technology keeps advancing but the root principles do not change.

There are many factors that affect the cryptomarket. The currency is decentralized, the market is not. Each party has cryptocurrencies but the power is in the hands of the one who holds a significant amount of shares. In order to analyze the market, more global factors should be taken into consideration such as legal and regulatory framework, scaling and recognition.

So, Safe Trading!

Panaesha Capital is a fintech firm focused on blockchain technology and digital currency products. The new technology has mind-blowing implications on almost every sector and no amount of regulatory framework can curb its growth. In fact the underlying technology, blockchain technology, is being proactively utilized by several governments and Panaesha Capital aims to be at the forefront of the new revolution.

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