The Bitcoin market
The bitcoin market has been a source of excitement and anxiety for investors, and it’s not always clear why prices move up or down. This uncertainty can lead many speculators to make some bad assumptions about what’s driving the market. For example the claim: “When stock markets dip, so do bitcoin and other cryptocurrencies,” wasn’t true in late 2018 when stock markets were falling due to fears over trade wars. Yet it still is repeated by many people, as gospel, who have never taken the time to really understand how crypto works.
When the price of bitcoin moves, it’s easy to guess about many things that might be driving the changes.
The first thing to remind yourself is that bitcoin is not a stock. It’s a digital currency that only reacts to one thing: the demand for it as a store of value. So if you are trying to understand why the price of Bitcoin has changed, think about what happened within its supply and demand.
How does this work? When someone wants to buy or sell bitcoin, they simply enter their order on an exchange platform and wait for someone else who also wants to buy or sell at an agreed upon price. As soon as there are two people matched up who want the same deal, the trade happens instantly!
This means that when the price goes up there are more people who want it than there are sellers willing to part with their digital cash (more demand will push prices higher). There simply isn’t enough supply available at that point (because no one’s selling).
Conversely if too many people sell at once, we will see prices lower because less buyers will be looking for the lowest prices available (there is less demand). This leads us back down again until everyone finds some equilibrium point. This point is where everyone feels comfortable buying/selling at whatever rate they feel makes sense based on the situation at any given time.
A few prominent experts are getting it wrong.
If you’re reading this, you probably know that cryptocurrencies are notoriously volatile and unpredictable. If a coin can go from $100 to $1,000 in days and then back down again in an afternoon, it’s hard for even the most seasoned investors to make sense of where prices will go next.
But a few prominent experts have been making predictions about bitcoin price movements for years—and they’ve been getting it wrong more often than right.
While the experts may not be able to predict how bitcoin will perform at any given moment, they do have valuable insight into why some coins take off while others flounder—and what you can do to protect yourself before investing in new tokens or coins (which are sometimes called “tokens”).
If you want to understand what’s happening in the crypto market, don’t listen to many experts.
When it comes to understanding the crypto market, the last thing you should be listening to is many of these experts.
- The mainstream media is owned by a handful of corporations who are not especially interested in telling you what’s really going on. They’re looking out for their shareholders, not your financial well-being.
- Governments can be equally compromised by corporate interests, so be thoughtful about trusting them either (especially if they tell you to buy gold).
- Your friends and family probably don’t know much about bitcoin or blockchain technology, so take what they suggest with that understanding.
- Crypto prices can be affected by a lot of different factors that weigh on supply and demand—for example, news events or rumors in the community can have a huge impact on crypto prices. In fact, crypto investors will often buy more coins when there’s a lot of volatility in the market because they know there’s an opportunity to make money from those changes.
- Crypto is fun to invest in because it gives you access to something new: blockchain technology!
We all know how exciting it was when we got our first smartphones and began using apps like Twitter and Instagram for the first time. If you have been thinking about investing in newer technologies such as blockchain and crypto, they are also exciting because they hold a lot of promise for future users.
Federal Reserve interest rate hikes cause crypto prices to drop
In recent years, interest rates have been rising around the world—especially in the US. This has led many to believe that a significant factor affecting crypto prices is central bank policy and changes in interest rate levels. However, while it’s true that higher interest rates can cause some problems for cryptocurrencies, they do not directly affect crypto trading or price movements.
In fact, the relationship between crypto prices and central banks’ monetary policies is far more complicated than some analysts have suggested. While there may be some indirect connections between these two phenomena—and while certain events could potentially affect both at once—it’s important not to conflate correlation with causation when interpreting these correlations as evidence of causation itself.
Crypto prices rise when other assets fall
Bitcoin is not necessarily a safe haven asset although some have used it in this manner at times. It should be considered as a backup investment with great caution. It is not suggested as a great investment to hedge against inflation and it is not the best hedge against market crashes, including the stock market or housing markets.
A safe-haven asset is typically an investment that performs well during periods of uncertainty; like when there’s political unrest, economic crisis or war in your country. In times of uncertainty people sell their risky assets and flock to safer ones — things like gold or government bonds — hoping these investments will protect them from losing money on their investments.
Bitcoin does not have this function because it hasn’t been tested under conditions of extreme stress yet and no one knows how it would perform in those circumstances if ever faced with them.
The crypto market is not reacting to mainstream financial news, because these two markets are largely separate.
As a general rule, the crypto market is not reacting to mainstream financial news. This isn’t because the two markets are largely separate—they are—but because there are so many other factors affecting cryptocurrency prices.
Cryptocurrency’s value is determined by its utility as a store of wealth and a medium of exchange, which means it’s tied directly to the price of bitcoin. If you want an easy way to understand how these things work together, think about how much more valuable your home is if you live in Silicon Valley rather than rural Mississippi. Your house would be worth more money if it were closer to places where people want to be.
Crypto is not directly affected by what happens with interest rates, stocks, real estate, or anything else.
- Crypto is not a stock.
- Crypto is not real estate.
- Crypto is not a bond.
- Crypto is not a commodity, even though it can be traded on the same exchanges as commodities. It generally has low correlation with other assets like gold and oil and corn.
- Crypto is not currency, even though it can be used to pay for goods and services in some places (like Japan). It is also speculative in nature—BTC’s price has increased nearly 200x since its introduction back in 2009, although it has been volatile along the way due to things like hacks and regulation changes by governments around the world.
Price movements can be predicted accurately based on technical analysis alone.
Technical analysis is a method of forecasting the future price movements of securities by analyzing their past price movements. According to theory, any given security will move in a specific direction based on its previous performance.
If you’re an investor who wants to make money by trading stocks, futures contracts or forex, you’ll probably want to know if technical analysis can be relied upon as an accurate predictor of where prices are going next and when they’ll get there. Many investors don’t realize that technical analysis isn’t based on fundamental information about companies’ earnings prospects or changes in their industry—it’s only concerned with past and present trends in stock prices themselves (for example: The S&P 500 has been up for five days in a row; therefore it’s likely to go up even more today). Fundamental analysis plays an important technique for success in many other trading markets.
The relationship between bitcoin and fiat currencies isn’t simple enough to be represented by a single chart
The difference between bitcoin, gold, and the dollar is that they have different relationships with fiat currencies. Bitcoin’s relationship with the dollar is indirect and complex; it doesn’t depend on a direct comparison to any particular fiat currency.
Bitcoin doesn’t have a direct relationship with any fiat currency because it isn’t a commodity like gold or an object of value like dollars or euros. Instead, bitcoin has an indirect relationship with those currencies because its price fluctuates based on supply and demand across global markets.
Bitcoin leads altcoin prices
You’re probably familiar with the fact that Bitcoin (BTC) has been leading the pack in terms of price gains in the cryptocurrency market. However, this doesn’t mean that altcoins are inseparable from BTC or have any direct relationship with fiat currencies.
When an investor uses a fiat currency to purchase cryptocurrency, such as BTC or ETH, his or her goal is to buy more BTC/ETH than he or she initially invested. In other words, if an investor buys $100 worth of bitcoin and it increases 20% over time, then he or she will have approximately 120% of their original investment after selling their coins for a profit.
This does not mean that there is only one way for investors to make money from cryptocurrencies: many traders use leverage trading on platforms like BitMEX so they can take advantage of both upward and downward swings without having to worry about margin calls (when your position in a given cryptocurrency goes below your deposit size).
Bitcoin doesn’t have as much impact on most altcoins as people think it does. The crypto market is complex and unique, not just a smaller version of the stock market
Bitcoin, the first and most popular cryptocurrency, is constantly at the center of attention. It’s a store of value like gold and other precious metals—but it’s also used as a speculative investment. In fact, many investors who buy bitcoin do so to sell at a higher price later on (or “hodl,” if you’re in crypto).
The problem is that this creates an inaccurate perception about how cryptocurrencies work as an asset class overall. You don’t need to understand what all these coins do or how they work before investing; just know that cryptocurrencies are complex and unique markets with different rules than traditional investments like stocks or bonds.
If you want to understand what’s happening with the cryptocurrency market, don’t listen to these experts. Instead, look at the charts.