So, what affects the price of cryptocurrencies?
- The psychological factor. As practice shows, it is the psychological factor that is the most influential. All kinds of news act as a catalyst, but it is the general panic that is a consequence of the growth or fall of the market. Investors can be divided into three groups: large capital, which actually controls the market at the expense of trade volumes, thoughtful investors who are building their strategy, and “hamsters” who are experiencing euphoria from rate appreciation (“easy money”). A light push is enough for the money of “hamsters” to pour into the cryptocurrency market. And a few reasons are enough to sow panic among the “hamsters”.
An interesting fact: most of all, the price falls on the news from regulators about potential trading restrictions. But such news has been slipping with enviable regularity for more than a year, and the market is still recovering and going up. That is, one could already get used to the fact that all kinds of restrictions do not have a significant impact on the capabilities of the blockchain. Therefore, it would be logical to assume that the push towards growth or decline appears from the side of big capital. And the “hamsters” are about their own greed or panic. Read more about the psychology of cryptocurrency trading in this article.
- Decisions of regulators regarding cryptocurrencies (first of all, regulators of Japan, South Korea, and the USA). Regulatory policies often baffle investors. For example, the SEC (US Securities Commission) at the end of last year allowed the launch of futures on the MTC on its own and CME. In early June 2018, information appeared that the SEC was about to authorize the creation of the first PTS ETF fund. It seems to be a sign of loyalty. But on the other hand, a number of restrictions in the field of cryptocurrency advertising, court decisions on the disclosure by exchanges of information about wallet owners indicate the opposite.
The situation is similar with regulators in Japan. The initial cryptocurrency liberalization course ultimately turned out to be a ban on the circulation of anonymous coins after Coincheck hacking, although hacking has happened before. Read more about the Japanese regulator.
And finally, they are not happy about the anonymity of cryptocurrencies in the EU, where the corresponding directive was adopted in May. After the document has finally entered into force, financial intelligence units will have full access to information that will help identify wallet owners. And the EU authorities themselves will be able to control transactions on exchanges. True, only about 30% of accounts are associated with real names of owners. And the term for bringing the legislation of the EU countries in accordance with the directive is 18 months.
- Actions of large investors. The market is driven by the economic law of equilibrium of supply and demand: demand is higher than supply – price is rising. Below it falls. Everything seems to be logical, but the market can be skillfully manipulated:
- In 2017, when the MTC exchange rate was at around $ 5,000. The United States, a number of US politicians criticized cryptocurrencies, dropping the rate to 3,000 dollars. The USA. This did not stop them from buying cryptocurrency at a minimum and changing their rhetoric somewhat. Another striking example is George Soros. In January 2018, he openly called the MTC a typical financial bubble (“Cryptocurrency is speculation, which is always based on a misunderstanding”). After MTC had lost 41% by April, he sharply changed his mind. And since May, the New York branch of Soros Fund Management (manages $ 26 billion) has permission to trade cryptocurrencies.
- Big capital knows how to make good money on the pumps of individual cryptocurrencies, the cost of which is a few cents. How to rock the market with the help of the Telegram channel and big capital.
- Mt.Gox. This is worth highlighting as a separate item. The potential appearance on the market of 200,000 military-technical cooperation and VSN thanks to the manager Kobayashi will make a splash. A quarter of the amount has already been sold, the MTC fell from 20 thousand dollars. The United States, to the present less than 7 thousand. Kobayashi himself denies the fact of the influence of his actions on the market, although it makes no sense to deny the laws of the economy. Read more about Kobayashi’s actions and their consequences.
By the way, on January 10, 2018, Warren Buffett expressed the opinion that the cryptocurrency market does not expect anything good. On January 17, the first futures contracts ended, and the MTC began to sell quickly. Here are two more reasons that could finally finish off cryptocurrencies during the January fall.
The fact that large investor capital is included in cryptocurrencies today can give hope that not everything is so bad. In other words, the market is unlikely to sag further than the current bottom (the lower level of 250 billion is clearly visible in the first picture of the review).
- Bankruptcies and hacks of cryptocurrency exchanges. Despite the fact that this factor should seem to be one of the most influential, it is not one. Even with the largest Coincheck hack, the drawdown was insignificant compared to other failures. There are several reasons for this:
- The amount of money stolen is not so significant in comparison with the total capitalization. In addition, not all hacks are successful and can partially be compensated by exchanges.
- The psychological factor. Many investors believe that their hacking will not affect and continue to trust cryptocurrencies. Hacking is an inevitable risk factor that investors come to terms with automatically. And this risk is not a reason to refuse to make money in a fast-growing market.
Investors are able to pre-determine the onset of potential problems at exchange platforms (communication in specialized forums contributes to this in many respects), therefore they manage to switch to other exchanges. Hacking losses have already been incorporated into the trading strategy.
- Carrying out forks and other reorganizations (has a local effect on an individual cryptocurrency). Investors react quite actively to any changes and news from developers. True, not always in the direction of rising demand. Interestingly, the same news for different cryptocurrencies can have a different effect. In previous articles, I already gave an example of the fact that the fork of the military-technical cooperation in August was generally perceived positively, and ETN – negatively. Investor reaction is understandable: the consequences of forks are not clear. Although in recent times there have been so many of them that the fear of radical changes has already passed and often forks are perceived positively.
The most significant news:
- joining the system of new large participants;
- report on the implementation of plans provided for by the roadmap;
- information about how significant successes are indicative of the results of the development.
- Interest in cryptocurrency miners. One of the few advantages of the PoW algorithm in comparison with PoS is the need for energy consumption, which is the cost of the coin. If the price falls below, miners switch to direct purchases, boosting the rate and returning it to the profitable mining zone. According to Tom Lee, Fundstrat Global Advisors analyst, the cost of MTC mining is about $ 6,000. The USA, which partially confirms the screen below (data for February 2018).
Tom Lee sincerely believes that it is the miners who will not let the MTC fall below $ 6,000. The USA. Although how they can withstand pressure from institutional investors dropping coins is not clear.
With the advent of new algorithms, the mining of individual cryptocurrencies is becoming more popular, and the more people get involved in it, the more interest in coins grows. Theoretically, an increase in the number of miners would have to push the course, but in practice this only fuels curiosity. If MTC is practically unprofitable due to the need to use ASIC equipment, then lower-tier coins are quite attractive. Example: Siacoin or Decred and Ethereum (dual mining).
Conclusion. I think this list can be supplemented more and more, but it is these factors that can be considered the main ones. Alas, most of them are now playing into the hands of the cryptocurrency market, which means there is no reason for optimism. At least, I do not believe that any of the regulators will make a significant relaxation in the near future or a serious fundamental factor will appear that can rekindle new confidence in the power of cryptocurrencies in the hearts of “hamsters”. And this means that soon ICO may begin to decline and the market will be cleared of “junk cryptocurrencies”, as it was with the dotcoms in 2000.
How to use this for investors for their own purposes:
- Do not hope that in the near future the capitalization of cryptocurrencies will go up. This is only possible if the cryptocurrency market is supported by regulators and big capital;
- closely follow the leading information resource: CoinMarketCap ( coinmarketcap . com ), Forklog ( forklog . com ), bitcointalk.org forum;
- Do not give in to panic and do not believe everything that is written on the forums or ascribed to certain famous people.
So far, the cryptocurrency market trend is rather bearish. And the only simple alternative is to open short positions on the main currency pairs in Forex. Cryptocurrency exchanges, with rare exceptions, do not provide for earnings on the fall of the exchange rate, because Forex remains the only optimal option. If you have a different opinion regarding what else may affect quotes, I invite you to discuss it in the comments.