The cryptocurrency invention has significantly revolutionized the financial sector. It has eased cross-border transactions. In addition, cryptomarket provides an excellent opportunity for investors to diversify their portfolios.

Although the cryptocurrency market has massive untapped investment potential, it is quite a tricky business to delve into. First, virtual currencies are highly volatile. Therefore, you must have a good idea of the market direction to reap profits. The problem is that all cryptocurrency predictions are purely speculative. Understanding the core factors that move the cryptocurrency market is the only way to know the likely price direction.

Below we have composed the top factors that drive the crypto market today. Let’s delve right in.

1. Supply and Demand

The law of Demand and supply is the leading factor affecting the cost of assets and commodities. Cryptocurrencies are no different. When the demand for a digital coin is higher than the market supply, the price increases. Similarly, if the supply is higher than the demand, the price plummets.

For instance, the high demand for virtual currencies like bitcoin contributed to the 2021 bull run. With everyone striving to get a bitcoin to their name fueled by the fear of missing out (FOMO), the bitcoin price increased significantly, hitting an all-time high of $64 000.

Remember, some cryptocurrencies like bitcoin have a finite supply. With supply approaching the maximum, it will lead to a scenario where the supply surpasses the demand. Bitcoin will become scarcer, and the price is likely to increase significantly.

Whale investors

Whale investors are large crypto investors. They significantly determine supply and demand. When they are buying, the price shoots up quickly. The market dips when they are selling. Sometimes, they use their vast resources to make massive buys and sells intentionally, which shake the whole market.

1. Production Cost

High production is likely to push the price of cryptocurrencies up. For instance, bitcoin mining uses massive electrical power. Additionally, mining requires specialized systems and hardware to solve complicated math problems.

Additionally, halving is making the process more complicated because the reward for mining has halved. Therefore, even if you successfully solve the mathematics problem, you get less bitcoin than the miners of previous years. Also, the extraction process is becoming more costly and complex for the 10 minutes window. As mining competition increases, it becomes more difficult and costly to mine.

1. Regulation

The market regulation significantly determines the price of cryptocurrencies. Regulations vary significantly. While some countries are working to have elaborate cryptocurrency regulations, others have no regulations whatsoever. In other jurisdictions, the regulations fall in the grey area.

Well set out regulations give investors confidence. As a result, the sense of security pushes the price of cryptocurrency high. It also means that the ICOs or crypto exchanges will be around in the long run. In contrast, a lack of regulations spells doom to the future of the market.

The Crypto regulations in the US and China play a vital role in the rise of cryptocurrencies. The US is the biggest economy on the globe. The Chinese economy also plays a significant role in the global economy because China is home to some of the biggest crypto investors and a colossal number of miners.

One of the biggest crypto regulation tussles in the US is whether the cryptocurrency falls under securities or commodities. Instead of crafting new regulations, the government plans to fit the crypto market into the already existing regulations. With crypto adoptions increasing in leaps and bounds, the regulation will matter a lot. It is one of the major factors that drive the cryptocurrency market.

If the regulations are strongest, they will suppress cryptomarket growth. On the other hand, favorable regulations are a catalyst for the development of cryptocurrencies. Remember that the reason people endear cryptocurrencies is because of the decentralization attribute. Therefore if the regulations allow government interference, it could affect the value of the cryptomarket.

Even If the regulators adopt a neutral approach, you can expect Anti-money laundering and Know your customer (KYC).

1. Competition

Every other day, new coins are making their way into the market. Various virtual currencies attempt to bring enhanced solutions to the market. For instance, EOS and Ethereum are competing for the dApps and smart contracts market. Others likeMonero and Dash are striving to offer privacy solutions.

A cryptocurrency that offers better features than what is already available will have more demand. As a result, its price will increase, which can affect the total crypto market value.

New ICOs are likely in the pipeline, thanks to the relaxed entry regulations. This means the competition will increase.

But competition is good for consumers. Stiff competition lowers the price of cryptocurrencies, making them more affordable.

Availability

A digital currency’s competitive advantage is determined by the availability and accessibility of cryptocurrency in the market. For instance, bitcoin and Ethereum are highly accessible in popular exchanges. Therefore more market participants can easily access the crypto.

Some CFD and Forex brokers allow investors to trade cryptocurrency. The brokers have a wider reach of market participants, enabling investors who can’t buy actual cryptocurrencies to trade cryptocurrencies on their platform. Some exchanges trade futures and funds with bitcoin as an underlying asset.

When a cryptocurrency becomes available in a cryptocurrency wallet, more people can actually access it. Therefore, its price surges. An increase in facilities such as ATMs and Retailers that accept cryptocurrency significantly boosts cryptocurrency adoption.

5. Market News

The world is now a global village rather than technology. Disseminating news across the globe takes a second. With the power of the media in this era, new events can significantly affect the crypto market.

The news is a double-edged sword. It can either cause panic or increase demand because investors follow market news for fundamental analysis. News on major economic indicators such as GDP can affect the market significantly. Similarly, inflation can lead to a shift to bitcoin use as investors hedge their wealth on cryptos.

Also, announcements on cryptocurrency network updates can shake the market. For instance, a recent Ethereum update saw the cryptocurrency algorithm transition from proof of work to proof of stake. Since the updates come with improved performance and adoption, it can significantly boost its demand and ultimately affect the whole market.

Market Sentiment

Market news is usually connected to market sentiment. Market sentiment refers to the general attitude of investors toward the asset. Mass psychology significantly affects the cryptocurrency market. For instance, Tezos has cut itself as a unique virtual coin boasting of democratic governance. As a result, it has given investors confidence and trust, making it one of the fastest-growing cryptocurrencies.

Other Factors

Other factors spur activities in the crypto market. Perhaps security issues are the most important to mention.

Security

One of the features that can significantly shape the cryptocurrency market is the security problem. In the past, there have been cases of cybercriminals hacking and making away with cryptocurrency. Recently, hackers gained entry into the Ethereum Decentralised autonomous organization (DAO).

Cases of hacking significantly taint the cryptocurrency image. When people lose confidence in the security of a certain cryptocurrency, it can lead to plummeting prices. In some cases, hacking leads to a market crash. For instance, when Binance Exchange was hacked, the bitcoin market crashed 10%.

Utility

Cryptocurrency utility also determines its demand. Utility means other uses of the cryptocurrency besides buying products. Some of these services include smart contracts. For example, a Binance coin can be exchanged at the Binance for a discount. Similarly, Tether is tied to the US dollar and can be used for hedging when the market is highly volatile. Digital tokens with high utility have high demand.

Closing Remarks

Numerous factors affect cryptocurrency prices and generally impact the cryptocurrency market. Understanding these factors give investors an upper head in trading cryptocurrencies. It is now upon you to make use of this information and invest prudently.