The price of any asset is always affected by a group of factors, and it is known that digital currencies have a group of factors that affect its price, which of course differ from traditional financial assets. What are the factors that affect the price of digital currencies? Why is the price of digital currencies affected by news? This is what we will discuss with you in this article!
➫Basic factors: supply and demand
Just like other assets, the price of cryptocurrencies depends on fluctuations between supply and demand.
Therefore, it is logical that an increase in demand will lead to a rise in price. For example, when companies and institutions began buying and holding cryptocurrency in early 2021, its price skyrocketed as demand exceeded the amount put on the market for sale, resulting in a decline in the overall supply of cryptocurrencies. An increase in supply will lead to a decrease in price.
➫ Institutional adoption
The news greatly affects investors' interest in digital currencies. Despite the extreme volatility of the price of cryptocurrencies, 2021 is marked by unprecedented adoption by both institutions and businesses.
➫ Laws and legislation related to crypto
The price of digital currencies is affected by developments in the regulation of digital currencies, as changes in them can encourage or discourage investors to invest in digital currencies, which in turn leads to an increase or decrease in the price.
➫ Why is the price of digital currencies affected by news?
A question is always asked: Why is the price of digital currencies affected by news? For example, on January 2, 2022, week-long protests began in Kazakhstan.
Most people did not realize the importance of this event for the digital currency market, but what many of them missed is that in recent years, Kazakhstan has become the second largest mining complex in the world in terms of hash rate, as Kazakhstan represents about 18% of the global hash rate, and is the only country that... It is surpassed by the United States of America.
Therefore, as a result of the protests, the price of Bitcoin fell by about 13.1% from January 2 to January 8.
➫ Will digital currencies become like other traditional assets?
In theory, traditional market-related news such as macroeconomic reports or monetary policy decisions of central banks should not affect cryptocurrencies due to its decentralized nature. However, current data indicate the opposite. Although digital currencies are not a traditional asset, public sentiment on news seems to affect its value.
Historically, crypto assets have not shown a strong correlation with major stock indices.
However, in the latest Coinmetrics data, the daily correlation between the cryptocurrency and the S&P 500 jumped to 0.47 on January 28th, 2022, indicating a close relationship between them.
• Conclusion
As the digital currency market matures, we see it following new paths that we have not seen before.
If digital currencies were initially not affected by the factors affected by traditional assets, now and with time they have become more sensitive to them.
In addition to news related to institutional adoption, laws and legislation related to crypto, the price of digital currencies is affected by changes related to economic conditions in general and global events that affect the traditional market.
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