Samuel Wan · 1 day ago · 2 min read
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The cryptocurrency market is experiencing incredible growth in the past year and a half, rivaled only by the ICO craze of 2017. Bitcoin has more than tripled its all-time high from the previous bull run, and altcoins prices are skyrocketing left and right.
This increased hype has pushed investors to buy bitcoin in droves, trying to get a piece of the profits while this cycle lasts.
However, many investors out there are willing to learn about what really influences the price spikes and dips. For this reason, we created this article encompassing the main factors that contribute towards the crypto market growth. With this list in your bookmarks, you will have no problem in detecting market movements and understanding their meaning.
Before we delve deeper into the factors that influence crypto prices, we first need to teach you some fundamentals about the king of cryptocurrencies – Bitcoin.
Bitcoin was released in 2009 and was the first cryptocurrency to see the light of day. Created to be the first global decentralized currency, its increasing popularity jumpstarted the entire industry of decentralized finance.
Thanks to the blockchain technology behind Bitcoin, thousands of other cryptocurrencies have spawned over the years, with various use cases and characteristics.
With that said, Bitcoin remains the first and most valuable crypto by market cap to date. This is due to some of the inherent characteristics that give it such great value:
- Limited and controlled supply – the number of bitcoins that can ever be put in circulation is limited to 21 million. Moreover, every 4 years, the rewards that allow the creation of new bitcoins are reduced by half. This way, bitcoin becomes increasingly scarce over time, and therefore its value increases.
- Most secure network – due to its pioneering status and the sheer number of Bitcoin miners, its blockchain is the most secure out of all the market.
- Used as a base currency – while novice traders use the USD as a base currency when trading crypto, the large majority of cryptocurrency investors prefer to account for their holdings in BTC. As such, the price of bitcoin has a big impact on the rest of the cryptocurrency market, and many use its performance as a market benchmark.
Factors impacting the growth of cryptos
There are multiple major factors that impact the growth of cryptocurrencies. Let’s have a look at them below.
Increasing Bitcoin scarcity
The first major element influencing the price of cryptocurrencies is Bitcoin’s increased scarcity.
The crypto market, like any other open market, is mainly driven by supply and demand. In our case, supply constantly decreases due to the reward halving mechanism coupled with the limited max supply.
On the other hand, the demand constantly increases due to the rising popularity of cryptocurrencies and their slow but steady adoption.
Experts even predict an unprecedented supply shock for Bitcoin, that could drive the value of the original cryptocurrency to 6-figure levels by the end of this summer.
Usage and mass adoption
The second most important element in the growth of cryptocurrencies is their mass adoption for both store of value and usage as currency.
Bitcoin especially has been greatly appreciated by both retail and institutional investors for its role as a store of value. Unlike traditional commodities such as gold, bitcoin is easily stored and transferred, which has greatly increased its popularity over precious metals in this regard.
Moreover, alternative cryptocurrencies propose a wide array of efficient and cost-effective solutions for money transfers and payment networks. Consequently, users and merchants are increasingly interested in using cryptocurrencies as a payment method.
Hype, FOMO, and FUD
A major factor driving demand up or down in the crypto markets is the fear of missing out or FOMO. While this phenomenon has been present in all open markets, the accessibility of the crypto market makes it even more prevalent.
As such, we can see incredible price spikes, like the recent DOGE rally where we saw investors flock to the markets to buy the meme coin, regardless of the fundamentals behind it.
On the other side of the spectrum, we have fear, uncertainty, and doubt, or FUD, which can quickly drive prices down. FUD can be the product of bad market sentiment or increasingly worrying rumors which can trigger a cascade of selloffs and cause the markets to plummet.
Finally, we have crypto regulations. These can cause either FOMO or FUD, depending on their nature. For example, if a country decides to make crypto trading tax-free, prices could go up. On the other hand, if a government tries to ban Bitcoin, this could result in prices going down.
Disclaimer: This is a sponsored post brought to you by PayBis.
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