The period of greatest interest in the cryptocurrency market for investors has certainly been the arrival of COVID-19 in our lives. People had a lot of free time to learn how it works, and a desire to earn from the comfort of their homes. Of course, now there are a lot of assets and the situation is quite risky, but nevertheless, such financial investment is still relevant, if for the long term.
It should be understood that now is not a stable time, due to various factors, which also affect the cryptocurrency market, approximately as follows:
- the most well-known and sought-after currencies fluctuate in value by about ten percent in either direction;
- smaller currencies naturally remain riskier, and the percentage of increases and decreases in value has a larger range.
Of course, in order to become a successful investor you first need to understand the intricacies of the cryptocurrency market, all the risky aspects of this sphere, and of course, you need a platform for your activity. One of the most functional and reliable platforms, which provides all actual information and will become your reliable assistant, is certainly ChainBroker. To get acquainted with all its features working follow the link https://chainbroker.io/.
When your wallet or bank account has your money in euros, dollars, or other relatively safe currency you feel a certain stability, because this currency is supported by the corresponding state bank, and most likely there will not be sharp changes in value, because it is regulated by the state.
The volatility of such currency depends on a large number of factors, such as:
- the cost of producing the token itself;
- supply and demand for it;
- constant competition among tens of thousands of currencies;
- much depends on the level of management, and much more.
The Cost of Producing a Token
This factor is not due to the simple sequential process of mining. The cost of the currency itself is also due to its popularity because the more miners try to mine a token, the more difficult it is to verify the block in the blockchain. When the currency reaches a real demand – accordingly, more miners are needed, and they in turn need equipment – which is a cost that is built into the cost of the token.
Supply and Demand
In addition to the costs of producing tokens, pricing is also influenced by the demand factor, that is, supply and demand. Leading global projects offering cryptocurrency on the market prefer either to leave a fixed total number of tokens or to provide an unlimited resource.
In the case of the latter, it is a frequent practice when they issue a large number of tokens to potential investors or destroy them altogether.
Why do cryptocurrencies get “burned”? Such actions are necessary to control the growth of supply turnover. This is accomplished by redirecting the currency to an address on the blockchain that cannot be recovered.
Of course, when a currency is in high demand its price goes up accordingly, as you can see in the example of Bitcoin.
Internal Competition in the Market
Besides more than tens of thousands of various cryptocurrencies, almost every day we are offered new types, which explains the crazy competition between them. In order for a new type of currency to be successful it must meet these criteria:
- creating a network of clients;
- a functional application for the currency on the blockchain that must improve the limitation of other cryptocurrencies.
In the case of a successful start, the competitor’s currency is undervalued, which in turn marks the rise of a new one.
An investor’s limiting factor in acquiring some currencies is their sale on only a few exchanges. If you decide to use a small exchange, you can get a large markup on the tokens, which can make the transaction not rational and profitable.
If the currency is offered for sale on more exchanges it increases the value of the cryptocurrency, due to the large number of investors in it.
Advertising and Media
Not the main factor, but no less influential. When you decide to become an investor – the first thing you do is to get information on exchanges, and then read information about a particular chosen currency in the Internet environment. The information that spreads out there also influences the price of the currency, such as in situations like this:
- If you see a celebrity (especially one you are very fond of) talking about his successful investment in Internet resources; or a large number of attention-grabbing advertisements. Of course, this increases the value, as it attracts more investors;
- An anti-publicity scandal is enough to bring down the value, even if the information is not credible.
The presence of high risks of such investments is of course due to imperfect regulation by states and the lack of a clear legislative framework. Basically, you can find more negative factors in the regulation, such as:
- the possibility for investors, by means of options, to bet against the price of the currency, and thus reduce price volatility;
- the central regulator’s designation of a major or minor currency, which will also reduce demand.
A Number of Nodes
One of the factors that determine the success of a currency is a large number of nodes, which indicates the number of working wallets. If there are many wallets, and investors – the currency has the possibility to wait out the end of the crisis situation on the market practically painlessly. To find out information about the number of active wallets you can use one of the options, namely:
- on the cryptocurrency’s homepage;
- through the Google search engine.
Now you have the knowledge in the context of key factors that affect cryptocurrency value, which will allow you to make your investments more successful and minimize the risks. Based on indicators of the current situation in the cryptocurrency market we can make fundamental conclusions, that long-term investments are more promising nowadays, but the situation can change. Exactly the same as the main factors of cryptocurrency volatility can change.