By Josiah Wilmoth
Increasingly, retail investors are diversifying their assets by investing in cryptocurrencies such as bitcoin and ethereum. However, many investors express confusion at the sometimes-inexplicable bitcoin price swings that occur on a day-to-day basis.
Strategic Coin believes investors should only invest in assets they understand, which is why they provide the educational resources and market research reports investors need to navigate the crypto finance space with confidence. Below, this article explains three factors that cause the price of bitcoin and other crypto assets to fluctuate on a daily basis:
1. Regulatory Factor
Because cryptocurrency is a burgeoning technology, most national governments are just now beginning to issue specific guidelines for businesses, investors, and consumers who participate in the crypto economy. Because the pace of cryptocurrency adoption and the ease of access to third-party services such as bitcoin exchanges is dependent on a favorable regulatory environment, it is not uncommon for prominent regulators to cause minor shifts in the market by making public statements that praise or criticize bitcoin and initial coin offerings (ICOs).
Concrete legislation and regulations, though, have a more profound impact on the value of bitcoin. After China banned ICOs and bitcoin exchanges in early September, the bitcoin price dove by more than 30%. It eventually recovered — in part because bitcoin-friendly Japan began issuing licenses to domestic cryptocurrency exchanges — but this incident demonstrates that hostile regulators can inject significant volatility into the cryptocurrency markets.
2. Media Attention
Media coverage can also impact the bitcoin price by intensifying the effects of other market-influencing factors. For example, media focus on the rising bitcoin price might convince casual retail investors to purchase bitcoin to avoid missing out on potential profits, causing the price to increase further. Conversely, negative media coverage accompanying bitcoin price declines often causes people to panic sell their assets, placing further downward pressure on the market.
3. Professional Day Trading
Finally, professional cryptocurrency traders initiate price movements by responding to market trends and using high-risk tools such as margin trading to attempt to maximize the profitability of their positions. Large-scale traders also attempt to use the size of their holdings to manipulate the markets, although this is more widespread in the altcoin markets, which have lower liquidity and are thus easier to manipulate.
Each of these factors plays a role in bitcoin’s daily movements, but this is not an exhaustive list, nor does it account for macroeconomic trends within the crypto economy. To learn more about investing in crypto assets, consult the helpful market research reports published by Strategic Coin’s research and advisory group.
Strategic Coin is your go-to source for cryptocurrency investment research and education. Whether you need help understanding the basics of blockchain technology or desire to read an in-depth analysis of the latest initial coin offering, Strategic Coin will provide you with the information you need to take advantage of market opportunities within the crypto finance industry.
Featured Image from Reuters