If you are looking for a guide to start out on your cryptocurrency trading, this is the post for you. In particular, this guide takes a look at the economics of trading on cryptocurrencies.
By and large, some of the concepts we will cover here may be somehow particular to the cryptocurrency market but some of them may be sourced and relevant to the traditional investment markets. But all being said, the fact to mind is that in this particular aspect we will be taking a specific look at those factors that determine the movement of prices of any particular cryptocurrency. These factors include but are actually never limited to those issues of supply and demand, utility, mining difficulty and market sentiment. Below is a look at some of the above mentioned factors in their detail.
Mentioned above as a factor influencing the prices of cryptocurrency is that of supply and demand and it is that we will begin with here. As a matter of fact, this is one of the fundamental factors that will sure affect the prices of cryptocurrencies. A good example is Bitcoin which happens to be one of the most popular and well known of the cryptocurrencies and as such happens to be so highly sought after of the cryptocurrencies. Talking of the numbers of coins, bitcoins stand at 16 billion coins circulating in the market but still these numbers are still low when compared to the peers. It is looking at the low supply of Bitcoins there is in the market when looked at in comparison to the demand there is for the cryptocurrency Bitcoin that we see it surging so much in price.
The next aspect that determines the prices of cryptocurrencies is that of utility. Talking of utility this can be generally defined as the usefulness of the cryptocurrency. Talking of the usefulness and utility aspect of the cryptocurrency, it is a fact that the more useful a cryptocurrency happens to be, the more of a valuable perception it has and the as such the more likely it is to be bought.
And of the other factors that affect the cryptocurrency price movements, one more we will take a look at is the mining difficulty. As far as mining difficulty goes , for definition purposes this may be said to be how hard it gets to be for one to be the next person to add a block to the blockchain and as such earn rewards for doing so. By far and away, the fact to note is that a lower mining difficulty simply points to the fact that the cryptocurrency is easier to mine and this has an effect on the rate of its supply which will be higher and this in turn affects the pricing, which takes a dip in the end and the opposite is the case of a higher mining difficulty.