Cryptocurrency trading requires you to make educated guesses as to market movements in the future. While no one can predict these movements with 100% accuracy, there are still some techniques used by professionals to mitigate risks while trading.
The first thing you need to understand is what actually effects market movements in the sector. Unlike stocks, cryptocurrencies are uncoupled from many of the economic and political concerns that affect traditional markets. In most instances, the cryptocurrency market moves according to supply and demand.
The supply of a particular cryptocurrency refers to the total number of coins the firm will issue over the entire lifespan of the project. It also references the time frame and structure that these coins will be introduced to the market. Importantly, you also need to take into consideration the number of coins destroyed or lost as well.
The next factor you need to examine is the total market capitalization of the project you are interested in. The market cap is the total value of all the coins in existence for a certain project. Understanding the growth and retractions of a tokens market cap is critical to making informed price speculations.
Importantly, not all factors that affect the market’s movements are technical in nature. One of the most influential market movers in the sector is the media. You must pay close attention to how the media portrays cryptocurrencies. You will want to be aware of any potential developments that could boost or hinder large scale adoption in the sector.
Specifically, regulatory news can play a huge role in the market capitalization of a cryptocurrency. For example, the market took a big hit when China began a large scale cryptocurrency crackdown at the end of 2017. Considering the sheer size of the Chinese market, investors could easily tell that this decision would negatively affect the market in some way.
The next point to consider in your investment strategy is how well the coin in question is able to integrate into the current financial system. Tokens that feature easier integration are more likely to experience rapid growth in the market. This growth can be substantial when a coin is introduced to an already existing network.
A perfect example of integration providing a huge potential for upside growth can be found in Facebook’s Libra token. While this token is still under development and undergoing regulatory approval, it has more upside potential than most new projects in the sector. The reason for this inherent value stems from the fact that the Facebook network encompasses billions of international users.
Major events within the sector can provide a boost to the value of your investment in different ways. One such event, known as the halving recently took place within the Bitcoin ecosystem. This event occurs roughly every four years when mining rewards are halved. Historically, these events are followed by rising market values.