As is well known, the market for digital currencies is always in flux, with their Cryptocurrency price undergoing significant and often vexing changes. Many investors may give up on digital currency investments due to the relentless nature of these fluctuations. In such situations, it is crucial for us to anchor ourselves through continuous learning and research on projects.

Before investing, it’s advisable to understand the project’s whitepaper to organize one’s logic about the entire project. Only through a conscious effort to keep learning can we gradually grasp the changes in coin prices and learn how to find opportunities in this volatile market. So, what are the reasons behind the rise and fall of coin prices? Let’s explore that.

Reasons for the Rise and Fall of Coin Price:

  1. News: News is a crucial factor influencing price fluctuations and covers a wide range, including policy factors, the currency itself, and aspects of the market environment. News can be categorized as either positive or negative, where positive news stimulates price increases, and negative news leads to declines. Sometimes, whether true or false, the sheer spread of rumors can cause fluctuations. For example, if all the cryptocurrency experts endorse a particular coin, even if it’s entirely speculative, many people might believe it, leading to an increase in its price.
  2. Policy Factors: Similar to stock markets, cryptocurrency prices are influenced by government policies. For instance, if the government announces support for the renewable energy industry, prices of cryptocurrencies related to it may rise.
  3. Market Manipulation: Cryptocurrency markets, like stock markets, have manipulative actors. These market manipulators, also known as “whales,” manipulate prices to their advantage by lowering prices when accumulating and raising them when selling, ensuring maximum profits. This factor is challenging to address as sophisticated whales understand retail investors’ psychology and strategically operate based on the prevailing environment and policy factors.
  4. Inherent Characteristics of the Coin: This includes news related to the coin’s team, technology, and founder. For instance, if a coin is exposed for plagiarism, its price may drop, while being listed on a major exchange may lead to an increase in price.
  5. Market Environment: Referring to the commonly known bull and bear markets, a good market environment (bull market) leads to skyrocketing prices, while a poor market environment (bear market) results in sharp declines. Most coin prices are influenced by the overall market conditions. When Bitcoin, the leader in the cryptocurrency space, experiences a continuous decline, most other coins tend to follow suit, and vice versa.

Principles of Analyzing Cryptocurrency Price Movements:

The rise and fall of commodities, including cryptocurrencies, are fundamentally tied to the relationship between demand and supply. If demand surpasses supply, prices rise; if supply exceeds demand, prices fall. This principle applies to financial markets as well.

Consider a hypothetical virtual currency initially priced at 0.001Y per unit, with a total supply of 100 million units. After issuance, no one purchases it. In such a scenario, the price remains stagnant at 0.001Y per unit. However, a cryptocurrency without liquidity is like waste; it repels people, let alone attracting them. To introduce liquidity and induce price fluctuations, two players, A and B, engage in a back-and-forth trading scheme. A sells to B, and B sells to A, creating liquidity and causing price fluctuations. However, without external participants (referred to as ‘leeks’ or inexperienced investors), merely shuffling money between A and B won’t yield profits. Therefore, various strategies are employed to attract more inexperienced investors. Once these investors join the market, a performance ensues.

Note: The term ‘leeks’ is used metaphorically to refer to inexperienced or naive investors.