Cryptocurrencies can be confusing to even seasoned investors, but due to the shiny new nature of this technology it seems that there are a huge amount of people who have never invested in anything at all suddenly putting money into cryptocurrencies. Many of them unfortunately just choosing coins blindly without doing any research, because they just don’t know any better.
Some have turned to trend analysis to look for patterns, but that’s not the only thing you should analyze. It’s important to understand what outside factors can influence the price of cryptocurrency as well. Most often these price fluctuations are created by some type of announcement that stirs the trading activity of a particular asset.
For example, many people are very excited about LitePay, a new merchant integration for popular cryptocurrency, Litecoin. If we were to take a fundamentals investment approach, rather than a technical one, our Litecoin analysis might indicate that LTC could be a good buy for us. This coin is still trading at around half of its all time high price, and it still has a lot of room for market cap growth.
Adoption of a currency is a huge factor in both its usefulness and its price. Obviously, the easier to use a coin is the more people who will take advantage of that. The LTC camp has advantages in both transaction speed and reduced fees over big brother Bitcoin, and they are a solid choice for mass adoption as a payment system.
They’ve also acquired a surprise partnership with “Abra” an application that allows people to easily invest in cryptocurrencies. LTC will essentially be the currency that all trades are eventually settled in, and this could be a big win for them.
Be in touch
When trying to analyze cryptocurrency news bits there are many sources you can check that may help you decide on an investment. While it will take some time to sort through the noise, both Twitter and Discord are good avenues for this. Most cryptocurrencies utilize both of these services to speak with their investors and communities.
In the case of the later, it’s likely you’ll be able to catch on to some potentially price boosting news items before everyone else which can be an excellent advantage for someone interested in value investing. Some key things to look for here could be large software or feature releases, new exchange listings, exciting new partnerships for adoption, even re-branding efforts can spur price activity in a coin or token that has been stuck in a slump.
There are also some calendar applications that can help you lock on to announcements that may come at certain dates. Not every project uses these, but if your chosen investment does it can be quite helpful.
What influences a coin’s value to decrease though? Let’s not forget that coins can move in the other direction as well. One bad headline can send the whole market tumbling, even if it’s being blown totally out of proportion unfortunately. This bad news can either be project based or based on the cryptocurrency market entirely.
Since the value of most coins is tied to Bitcoin it tends to take all other alternative currencies down with it. We’ve experienced this many times this year already thanks to whispers of cryptocurrency bans in several countries or the proposals of tightening restrictions that have made investors nervous.
On a project level, there are also cases of stolen coins or fraudulent ICOs that can make those who would put money into the space think twice. This starts a sort of avalanche as we saw, that can take a while to stop.
Whether it’s best for you to try to get out before this or hold is up to you, but you should keep in mind that exiting will cause a taxable event, and many people found that they owed a hefty tax bill thanks to this. Holding will not trigger a tax burden to the IRS.
Cryptocurrency markets are extremely volatile, and as always, you should never invest more than you can afford to lose. Do your own research, and be sure to diversify your investments. Investing in a new asset is not for the faint of heart.