The cryptocurrency market is characterized by increased volatility – crypto rates can change by tens of percent even within a few hours, which is the reason why people actively get into crypto trading since there is no such financial instrument in the world that would allow making a profit in such a short period of time. But this feature also hides increased risks: you can both earn quickly and lose everything in a matter of minutes.
Cryptocurrencies are an asset class that can be valued with simple financial instruments. At the same time, digital coins are an asset class that is radically different from traditional assets. Yale University researchers say there is very little reason to believe the common belief that there is a direct correlation between changes in cryptocurrency coins price and traditional assets.
What determines the price of cryptocurrency? That’s the main question of most novice investors and traders. In this article, we will try to give as many detailed answers as possible. The success of a transaction largely depends on understanding the correlation of the price of cryptocurrencies. Therefore, this information will be very useful, especially for novice crypto users.
How is Crypto Price Determined?
The capitalization of the cryptocurrency market as of the second decade of December 2022 has dropped from 880 to 810 billion US dollars. Compared to the all-time high of $64,158 on November 13, 2021, Bitcoin has hit the $16,000 mark, losing over 74% of its value.
As you can see, over the years, cryptocurrencies prices have changed significantly. What caused such a sharp price drop? The situation in the market is rapidly changing, and if you understand the nature of rate fluctuations, you can make good money on trading.
What Digital Assets Have the Biggest Impact on the Entire Market?
In the digital coin market, some coins affect the rate of others, that is, they have dominance. Of course, the non-replaceable flagship of the industry, Bitcoin, has the greatest weight. But, it is worth noting that as of December 2022, its dominance is only 39.9%. That is, Bitcoin still has the greatest influence but not the total. For example, the dominance of the second most popular cryptocurrency Ethereum is 18.4%, which is just over 46% of the capitalisation of Bitcoin. That means that the brainchild of Vitalik Buterin also has a fairly significant impact on smaller coins.
What affects cryptocurrency price? In fact, everything is simple. If Bitcoin and Ethereum grow, most altcoins follow them and vice versa. That is, Bitcoin and Ethereum set the market trend. Despite the common argument of sceptics that cryptocurrencies are not backed by anything, Yale University researchers concluded that the probability of Bitcoin and Ethereum depreciating to zero is 0.4% and 0.3%, respectively. It shows that cryptocurrencies are “immune” to both the negative impact of regulation and crises in the world of traditional finance.
How is crypto price determined under the Media Influence?
In the issue of pricing, the media factor also plays a huge role. Surely, you have noticed that during a bull market (when prices rise), the news feed is filled with positive news and most analysts predict a great future for Bitcoin and the entire industry, give positive forecasts regarding rates, the media write about new high-profile partnerships, etc. During a bear market, you can observe a diametrically opposite situation. The intensity of the use of the topic of cryptocurrencies in the media is often negative, aggravated during the downward direction of the crypto market, and this is how the corresponding correlation arises.
Fiat and Crypto Assets Correlation
Answering the question: “What determines the price of cryptocurrency?” it is necessary to understand how the volatility of fiat national currencies affects the prices of digital coins. As practice has shown, cryptocurrencies are invincible to the dynamics of the exchange rates of key fiat currencies, in particular, the US dollar: when the US currency rises in price, this does not necessarily lead to a decrease in the price of crypto assets, although such a correlation can be traced in the market of most other asset classes.
The Impact of Cryptocurrencies on the Wall Street Index
The great interest in cryptocurrencies has led to the following observation: companies that use “blockchain” in their name – the underlying technology of cryptocoins – have the best dynamics of their stock prices in 58% of cases after the announcement of the renaming of their business.
Thus, we see that cryptocurrencies and blockchain technology can not only be influenced by external factors but also become circumstances that affect other assets, in particular, stocks and stock indices.
What is the Best Place to Buy Crypto?
If you are reading this article and want to understand how is crypto price determined, it means that you are interested in this topic and would like to engage with this field. Now there are a huge number of different platforms on the market where you can buy digital coins. Due to the abundance of choices, it is difficult for novice users to make a choice.
If you are looking for a platform to buy cryptocurrency, then before registering, you should conduct your research. Choosing an exchange is an extremely important step, and it must be approached with great responsibility. Here are a few criteria that an exchange must meet:
- Appropriate jurisdiction. The site must be registered in a country whose legislation really works. Then, in case of disputes, you can count on legal protection.
- Trade volume. The more liquidity, the better. You should not register on very small exchanges, as, in this case, there is a possibility that you simply cannot sell your asset due to a lack of liquidity.
- Security. The site must have two-factor authentication. In addition, the exchange must undergo an independent audit for vulnerabilities. Only with these two components can you start working with the platform.
- Trading tools. If you are serious about trading, then, like any job, you will need the necessary tools.
- Variety of trading pairs. The rule “the more, the better” does not work here, as some platforms register shitcoins to fill the trident options. The golden mean is better, that is, a platform should not have only TOP-10 coins, but not thousands.
- Technical support. Having fast and adequate technical support will save you a lot of time and nerves, so pay attention to this even before registering on a particular platform.
There are many more criteria for choosing a cryptocurrency exchange, but most of them are individual. For the basic needs of the vast majority of users, the above paragraphs will be enough to pick a worthy platform for trading.
One of the best platforms that meet all these parameters is the largest crypto exchange in Europe, WhiteBIT. Here are over 450 pairs of the most promising digital coins. The exchange has an intuitive interface and is suitable for both beginners and advanced users. WhiteBIT strictly complies with European Union legislation and has a high level of security. The platform has a unique feature, you can add several external wallets to which the withdrawal of coins will be available. That is, even if your account is hacked, attackers will not be able to withdraw your funds to their own wallets. That is a unique protection tool which is offered only by WhiteBIT.
Conclusion
The overall dynamics of the cryptocurrency market remain largely unpredictable. For example, some analysts associate market movements with one or another decision of the US Securities and Exchange Commission (SEC). However, in most cases, this is clearly an after-the-fact analysis; in addition, we are talking about rare enough events so that a reliable correlation can be built on them.
Traditional financial instruments in relation to cryptocurrencies may become a thing of the past. Cryptocurrencies are a cure for the traditional financial system that makes all other cures unnecessary. Fundamentally, Bitcoin is independent of many other assets; its similarity to gold is manifested, which is why it has already been called “the new digital gold”. In addition, even gold is less “independent”, as its price fluctuates along with the rise or fall of the dollar index, which measures the value of the US currency in a basket of key world currencies, unlike Bitcoin.
