Bitcoin Price: Market Law and a Bit of Sentiment

Cryptocurrency market is a highly volatile one. This is one of its key features that lures so many new investors to the digital currency world. How is a digital coin priced? This is a question asked by any a cryptocurrency newcomer. To answer this question, however, you should first and foremost remember that digital currencies are ‘virtual’, they are not backed by any material assets and not regulated by any authority.

In fact, the only thing Bitcoin price depends on is supply and demand. This market law is king here, and it always governs the cryptocurrency price. The more attention is driven towards the digital currency market, the more Bitcoin is spread as an asset or payment option, and the higher goes its price.

Digital coins are as much volatile as they lack transparency. Nobody has a clue of the total amount of Bitcoins in the market and who they belong to. This is critical, as a few pumpers (investors who hold a large amount of an asset) agreeing upon a few actions could be sufficient to artificially create any market trend. As for the high risk, traders get large earning opportunities as a reward in case the market follows their direction.

There are, however, some secondary factors influencing digital coin prices. These are, for instance, increased financial awareness among general public and free access to cryptocurrency market news and events. The more attention digital assets get, again, the more is the demand, and the higher the price. Cryptocurrency infrastructure improvements, such as adding more deposit options, ways of making transaction, converting options, etc, also have some positive influence on cryptocurrencies demand. The easier you can enter and exit the market, the better for you.

With an in-depth approach, we can find yet another digital currency price driver, although its influence is more indirect. This is inflation rate in ‘traditional’ economy. Bitcoin, Litecoin and other digital coins price depend on how many coins have already been issued. A digital coin is a sort of finite resource, as the source code would allow issuing a limited number of course. However, Bitcoin is not connected to inflation in any way, as it is not backed by anything. Thus, cryptocurrency is becoming a kind of safe haven for investors who want to avoid inflation-related losses.

There are many more secondary factors influencing digital currencies, such as geopolitical events, number of active buyers and sellers, total cryptocurrency volume, speculators’ sentiment, etc. The political factor can be easily traced when comparing digital currency price with emerging markets currencies, such as Mexican Peso, Turkish Lira, or Russian Ruble.

Speculative market players do deserve some special attention. The digital currency market has just started developing, with its volume constantly growing, but intraday values still allowing speculators to artificially create an ascending or descending trend. We have already mentioned that above: a few investors with large amounts of cryptocurrency can make the price rise or fall.

The sentiment is another factor that should not be underrated. Market panic or hype may both cause the prices to fall and make the skyrocket. Everything here depends on market reactions to specific events at some point in time. In case the sentiment is positive and the investors are inclined to buy an asset, the price of such asset will be going up.

Anyway, when you invest in cryptocurrencies you should always remember that past performance does not guarantee future results, while the risks will be growing as long as the cryptocurrency market becomes more and more volatile.

RoboForex is a group of companies that offers brokerage services to clients in various countries over the world. The group provides traders from the Forex and stock markets with access to its proprietary trading platforms. 

Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.