In this article let's talk about cryptocurrency in general, what exactly are the factors that affect the change before the price evaluation of a coin. I will discuss the things you need to understand why a coin falls. It is not just based on their supply and demand but there are other things that affect its price and only a few understand it. Most beginners in crypto have no background in finance and they lack knowledge about economics.
Not everyone who builds a business is successful, not all investors are profitable, not all traders are successful traders and what is the difference between successful and unsuccessful individuals? They are not average, they are above average, they are not ordinary, they are extraordinary. This article is not for everyone and only for those who are interested to really understand market events and want to dig deeper.
There are four things that affect the rise and fall of the price of a coin, it happens to all coins or assets.
1. Psychological
We have many cognitive biases that affect our decision making as an investor so the price of an asset does not run in only one direction, an investor feels fear so he sells the coin he/she holds, so that fear becomes the reason why there are investors who sell the coin they hold when they see it falling. How does an investor feel when he sees that the $ 100,000 he invested has dropped to $ 20,000 and that will lead to panic sell. Imagine some novice investors and traders are experiencing this, so if you combine them, it will create massive selling pressure in the market, the reason why a coin falls is because there are more sellers in the market compared to buyers. There are still buyers, but they are few, because of the fear that sellers are experiencing, they want to sell their token as quick as possible even if they are at a loss just to alleviate the fear they feel and this fear is contagious. Only a few investors have the ability to decide against their emotions, they are the people who buy the dip but most of them sell the dip.
When it comes to money people become irrational and not because they do not have enough knowledge or they have no idea what they are doing, but what has a bigger impact here is human psychology so the market movement is very uncertain.
2. Technical
This is the traders game, in the investing world there are long term investors and short term investors, the only difference is that a long term investor has a longer time horizon, they buy an asset and they have no intention of selling it tomorrow or next year meaning they can hold it for 5 years, 10 years or more. In the short term investor we can also call them traders or they are the ones in and out of the market with a short time horizon, it could be one minute time frame, 15 minutes, 1 hour or daily time frame, they are the people who have no intention of holding the coin for a long time and they will sell it immediately when they have a profit.
Long term and short term investors have the same goal wh is to make profits but play a different game. They are both loking on price charts but the ones who often use technical analysis are short term traders, they base on historical data for the probability of future events and it also causes market movement depending on market sentiment whether bullish or bearish. When there is panic selling, some of them can contribute to the selling pressure by putting a short position and the bulls are missing In action and they will only enter when they notice that there is buying pressure again. So there is not much buyer when the market is red, maybe long term investors are buying but not enough to cover the massive amount of sellers in the market.
3. Economics
The crypto economy is a highly speculative, unregulated, new emerging asset. These things also have a big impact on the fall in the price of a coin, the fud and negative news that come out, it will create fear among investors. When BTC falls, most of the altcoin is correlated with Bitcoin because Bitcoin traders and investors also participate in various coins and other assets like whales or big investors. They can create massive selling pressure that will cause the market to collapse, panic selling will happen again and the people will not only sell BTC, they will sell there altcoins as well back to stablecoin. When the value of BTC decreases and the altcoins whose value is based on Bitcoin of course will also be pulled down. That's how the market works.
4. Monetary
This is the supply and demand, it doesn't mean that a lot of supply has a tendency for the coin to fall depending on the demand, so if you notice the projects have vesting periods, the coins are locked and there is a specific date before it can be bought in the market to avoid the over supply of the coin, because if there is no vesting period it will create massive selling pressure that will causet theprice to fall. If the monetary policy of a coin is not good and there is no demand for the coin itself, even if the supply is only 30,000 or one million, the value will not increase. There is a possibility that a coin will pump even without a use case due to its height but that is only a short term and soon it will also lose its value.
A good example of having unlimited supply is Ethereum, the demand over supply so its price does not fall and with the help of EIP1559 there is burning of Ethereum in every transaction so even if its supply is unlimited it seems to be limited due to changes of monetary policy. So if you’re wondering why the price of the coin you’re holding is falling, ask yourself, What is the market sentiment? Are investors scared? or they are neutral. What do you see on the chart? Bearish or bullish. If you think the project will take a long time, try to check the higher time frame, also look at the condition of the BTC because it may fall and your coin may be pulled down. Any news event that can move the market that whales can also take advantage to shake you out and of course the project itself, what is new development? Are there changes that could scare investors?
There are so many reasons and as an investor you need to know, the problem is that most of them don't know them just listen to what others are saying. It is easy to spread false information on the internet and if you do not know these things you may make the wrong decision.
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The information above does not constitute investment advice, financial advice, trading advice, or any sort of advice. I'm not a financial advisor nor an expert in such, so make sure you always do your own research first before investing. Happy Trading, Earning, Playing and Learning everyone!
Thank you for reading!
