In a speculative market, it is very easy for any cryptocurrency to both gain and lose value in a relatively short period of time.
Here are the main reasons why cryptocurrencies gain more value over time:
This is a very frequent cause of short term price movement, often companies announce announcements which causes short term hype. Tron is a great example of this going from 0.03 to 0.28 in less than a week with the route cause being the founder of Tron, Justin Sun, making lots of announcements of announcements and this caught both the communities and the media’s eye. Lots of rumours about potential partnerships circulate all the time, there is normally truth to these rumours, like VeChain who are now working with BMW. But a lot of the time these announcements are simply development updates and cause the price to dump. As the saying goes ‘buy the rumour sell the news’.
Community hype is equally a reason for short term price movement, an example is verge (xvg) where their community MASSIVELY hyped the development update that was due end of December. When the development update was late the price went from 0.225 to 0.14, almost a 40% drop in less than 24 hours.
In all communities you will have ‘whales’ and people that ‘shill’ coins, it is important to take what they say with a pinch of salt that as the reason why they are promoting this coin is because they own a large proportion of it, so it is in their best interest for you to buy (and cause the price to rise).
A Whale is a person with a significant number of holdings in a certain cryptocurrency
Shilling is basically promoting a coin for your own personal gain.
News drives this market, in December the news was flooded with coverage about Bitcoin breaking new highs, the launch of Bitcoin futures, a LOT of people heard about Bitcoin due to this surge in coverage. Interestingly, the correlation between google search trends and Bitcoin’s price nearly match. Showing that the more demand for cryptocurrencies there is, the higher the price.
News is not always good, we had news of China banning cryptocurrencies which lead to a 45% drop in overall market cap in a few weeks. We have also started 2018 with a vast amount of negative news coverage about the ‘bubble’ busting, Korea banning cryptocurrencies (which was just a rumour) caused a massive decline in market share, regulations have caused many investors to be worried, and fear is the dominant force in the market right now. News controls how the MASS public view cryptocurrencies, at the moment, mainstream media portray cryptocurrencies in a negative light. Saying Bitcoin is what criminals use and how the only use of Bitcoin is to launder money.
While this may be hurting mainstream adoption in the very short term, the technology behind Bitcoin and other cryptocurrencies is thriving. Over the next couple of years, after many blockchain use cases are being presented and competing with existing companies, we will see the spotlight turn to cryptocurrencies and then the markets will explode. This is when the mass public will come in.
This is a very common reason for the price of a cryptocurrency to increase by at least 10% in a very short period of time. When coins get listed from smaller exchanges onto bigger exchanges such as Bianance or Bittrex, the price tends to increase on average by 15% as soon as it is listed. Most of the time the price tends to fall back down to its pre-listing level.
Community voting on Binance can cause the price of a coin to increase in the short term, the reason for this is that investors are anticipating that this coin will increase by x% when it is listed on the exchange so they are looking to create a quick ROI. When this happens, 90% of the time the coin is dumped shortly after listing.
Exchange listings are very good for smaller cryptocurrencies as it allows them access to higher volume, their marketing strategies will have a much higher impact than before. This is why there is such a battle to get certain cryptocurrencies on larger exchanges.
More recently, Ripple fell from over $1 to now $0.87 due to the rumour that they were going to be listed on Coinbase (2nd time this rumour has come about). Once Coinbase denied this rumour the price dropped drastically.
Partnerships can cause the greatest increase in price for any cryptocurrency, a coin that is unheard of today could partner with a well-known brand and easily reach the top 10 in terms of market cap very quickly.
In such an emerging market, the projects who partner with as many well-established companies with a working product will likely gain a large market share and remain after the cryptocurrency crash. These will be the ‘blue chip’ cryptocurrencies.
Depending on their strategies, some projects announce announcements (Justin Sun…) and some are more professional and just announce the partnership when it is confirmed. This helps calm the price volatility a little. Be careful of projects that announce announcements, while they may be partnering with a ‘multi-chain’ company, this could mean Dave’s 3 burger stands down the road. If it seems too good to be true, it most likely is.
Rebranding is also one of the greatest movers in price, RaiBlocks rose by almost 40% in 24 hours due to a well needed re-brand. Antshares were less than $1 before they re-branded into NEO (which is now over $100).
The names ‘Antshares’ and ‘Raiblocks’ were due a re-branding, both of these companies realised that these names were not easily scalability so they changed and the market reacted well to it. However, this was more than a name change for these companies. NEO introduced its next generation road map and several other key business strategy updates.
What is important to watch out for is scammy cryptocurrencies re-branding for no apparent reason, the reason why the do this is because they know historically the market buys any re-brand.
Good old manipulation! This happens A LOT in this new, unregulated market. Whether it is whales controlling the price of a certain coin, trading bots manipulating it or the artificial printing of a cryptocurrency that is meant to be backed by the dollar to boost the price of other cryptocurrencies. There are lots of ways manipulation occurs, unfortunately there isn’t a lot that can be done until this market is properly regulated.
Pump and Dump
Last but not least, pump and dumps. The name is pretty self-explanatory but long story short, a group of investors (or a few larger) buy a coin with a lower market cap all at a similar time which causes the price to shoot up, the public who have no clue what’s going on then buy that coin thinking it’ll go ‘to the moon’ and then this pump and dump group dump their holdings.
You’ll see tonnes of coins rising 200% in 24 hours, this is most likely just a P&D so I would avoid at all costs.
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