In the ever-changing landscape of the cryptocurrency sector, there’s only one constant that doesn’t ever change: unpredictability.
Just as history has shown everyone, one can never be entirely sure about where prices are going, nor should they aim for a precise price point in the near or distant future.
However, gaining a glimpse of what awaits in cryptocurrency, specifically the virtual coins sheltered in your digital wallet, is realizable and won’t hurt your trading strategy.
After all, certainty is off the table regarding how volatile assets like cryptocurrencies behave, just like with other investments like stocks or bonds. Still, it doesn’t mean an as precise estimation as possible is unattainable.
You can understand and analyze the following factors when assessing cryptocurrencies’ potential or trying to grasp where the Ethereum price and the valuations of other digital coins are going, should there not be highly impactful external events soon flipping the script.
Understanding The Supply And Demand Theory
The primary elements learned in Economics 101 demonstrate that prices are always in accordance with the supply and demand of products, services, trading assets, and so on, and cryptocurrencies make no exception from this rule.
However, what happens when the market is underdeveloped, and many to-be investors get the equation wrong?
You don’t want to sleep on the idea that these two factors shall be simply taken as they are and see what the sector is cooking in the oven for you.
In theory, the more sought-after and demanded cryptocurrency is relative to the total supply available, the higher the chances that its value will experience gradual upsurges.
On the other hand, and consequently, when people start losing interest in the asset, avoid it, or cash it out, that digital coin’s price will slowly fade.
There’s a common belief that tokens with a hard cap, such as Bitcoin or BNB Coin, withstand less pressure in this regard and vice versa.
Additionally, future supply unlocks for significant owners of the total token supply, such as pioneer investors or protocol founders, tend to be detrimental to the price due to some selling pressure expected when major holders dip their enormous accumulations.
Halving events, such as the one awaited for Bitcoin in 2024, and token burns like the one with BNB this year in July, are also seen as influential occurrences.
After its last halving in 2020, Bitcoin showed price improvements soon after the process concluded, drawing many newcomers to the asset.
Supply and demand are ultimately the major factors deciding the faith in cryptocurrencies, and they’re not easily foreseeable but can be navigated correctly as experience and knowledge in the sector build up.
Impactful Events And Consequent News
Suppose you’re following the news and participating in discussions focusing on cryptocurrency.
In that case, you’re likely aware of the events that dragged the prices of reputable virtual coins down and pushed many owners to dump their digital holdings.
Major bank and crypto exchange failures such as the downfall of FTX, Silvergate, and Signature couldn’t possibly leave Bitcoin, Ethereum, and their competitors unimpacted or not cause concerns among owners of digital assets. The news has been all about the significant crashes.
Experiencing similar powerful events can lead even the staunchest cryptocurrency enthusiasts to do a complete about-face, causing them to reconsider whether their digital wallets might be better off without the burden of suffering assets.
This tension further leads to investors dropping their holdings in a row, causing a ripple effect that will be present for long periods, as has been the case with the long-standing effects of last year’s bank and crypto exchange collapses, whose waves are still felt now.
As such, the bear market that came around was imminent. However, experienced crypto investors know that the crypto market doesn’t remain in the dumps forever, and bullish trends historically appear after depressed periods.
Technical Analysis
It might sound like a non-economic factor, but technicalities hold underrated power regarding cryptos’ price movements.
These are considered external factors that can either trigger sell-offs or purchases in large numbers.
For instance, numerous traders rely on trading signals to make better-informed decisions about making entries or exits.
Well-known indicators exist, and if everyone is dependable on the same signs, the outcome might be an unexpected rise in purchasing or selling, which undeniably plays with the crypto values.
“Short squeezes”, also known as “bear squeeze”, happen when a crypto’s price surges and climbs quickly because of the pressure on short sellers to close their positions.
A helpful example can make short-seller sales due to a misassumption that prices will fall when the opposite scenario occurs and values rise. This can lead to a domino effect, which may cause prices to dip.
Sentiment Analysis
There has always been a heated debate concerning the possible interplay between market sentiment and the trajectory of cryptocurrency prices, with individuals typically aligning themselves with one of the opposing factions.
An article, namely the Review of Quantitative Finance and Accounting, released in 2022, demonstrates that market sentiment and crypto values generally go hand in hand.
According to the study, there’s been a constant tendency for the price of Bitcoin to grow when market sentiment improves.
However, no findings can point out exactly what elements influence the trajectory of prices.
One school of thought posits that the interaction between users and the sphere of digital money possesses considerable power to control how the price evolves.
On the other hand, others argue that these two factors have no real connection.
Concluding, most economic and financial research indicates that the regime shifts undergone by Bitcoin and the traditional emphasis put on the conventional regression models that analyze the ways, as well as the center of the distribution of the values of the reigning digital asset, are elements that fuel instability in the market.
What’s certain is that the findings demonstrate that there’s usually a correlation between the movements of digital assets’ values and investor sentiment and behavior.
Emotions and psychology significantly impact how assets are perceived and consequently approached.
Final Thoughts
As aspiring investors can see, several factors can be weighted to know better how to weather the market’s downturns and forecast a potential trajectory of prices.
A portfolio’s success or failure depends on many factors, but research and knowledge base remain key in this equation.
