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Since their creation, investments available in the stock market are characterized by their dynamicity and volatility. Influenced by social, political and economic factors, along with speculation and the market scenario, the price and the profit of the stocks can vary numerous times during the day, so this market is really lucrative but quite unstable.
With cryptocurrencies occurs the exact same phenomenon. For its origins in cyberspace and because they are inserted in the context of the digital era, they are submitted to the endless market and technologies’ transformations. However, like any other investment, some factors have more power when it comes to the cryptoassets’ exchange fluctuation.
Discover the main determinants of the cryptocurrencies’ price variations.
The main factor that does the exchange float is speculation. Because these tradings happen really fast, the prices can’t remain the same for too long, especially considering the number of people trading at the same time, leading the price to oscillate numberless times during a day.
Supply and Demand
Adam Smith’s theory created in 1770 is still applicable to nowadays financial market’s movements. Considering that cryptocurrencies’ value is determined by the number of people that are interested in investing in them, a number that is continuously increasing, the prices tend to define themselves by analysis between how many people want to buy cryptocurrencies and how much are selling them. So it reflects on an unstable exchange that can or can’t be quite significant.
The value of cryptocurrencies is influenced by the market’s receptivity. In other words, the more the markets are open to using cryptoassets, the better the cryptoassets’ reputation becomes and, as a consequence of this, the prices tend to float.
Altcoins and ICOs
With the same facility of trading already existent cryptocurrencies, it’s possible to create new ones (they’re called altcoins) or launch new tokens that are the digital version of stocks (those are called ICOs). The appearance of new cryptoassets creates a giant hype and provokes the market’s interest, so more people start to invest in those alternative cryptoassets, and this leads not just to price movements on altcoins’ and ICO’s prices, but also to Bitcoin’s price.
The state intervention on cryptocurrencies’ market also causes price variations. Regulation politics ou the declaration of illegality on cryptoassets’ investments in certain counties do their prices be very unstable. Countries like Vietnam or Marrocos have prohibited the use of cryptocurrencies claiming that they were straight competitors to the national fiat coins. In China, cryptocurrencies can be used by people and businesses for trading in cryptocurrencies exchanges, but financial institutions can’t use them. Venezuela, however, has created its own cryptoasset called Petro, liked to the country’s petroleum reserves.
Social, political and economic scenarios
The economist Eugene Fama, who created the concept of Efficient Markets, says that the prices adjust themselves to the information that “create price”, such as changes in the structure of capitals and changes in politics of dividends. Thus, recent events that are significant like economic crisis, elections, corruption scandals, etc., cause the cryptocurrencies’ prices to float.
The cryptocurrencies are extremely volatile and their price oscillations can be caused by many factors, however, investing in cryptoassets on the context of data-driven economy is away with no return, after all, new things are constantly being created and we can grow and develop along with them, or we can stay behind on this journey.
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