As we all know, the crypto market is highly unstable. In the past decade, we’ve seen many bull/bear markets come and go. But what causes such fluctuation in the crypto market?
- Media effects and framing
As we talk about factors that affect changes in the crypto market we can’t deny that a good chunk of it is social factors. These, on the other hand, are merely the media’s effect on public opinion.
Major media outlets have the ability to shape the way society thinks. Media has the ability to portray issues in the light that they desire, invoking certain feelings in the audience.
We see this time and time again when after a major bear market media outlets insist that crypto-assets are just scams. However, a year later they start discussing how blockchain can change the world.
The public opinion changes with the media’s outlook and those who aren’t familiar with the crypto sphere only rely on media for their news that can be seen on coin trackers like Coinstats.
It is no secret that crypto-assets have sparked a large amount of controversy. No one understood what they were and this caused governments of many countries to panic.
Currently, crypto-assets are illegal in countries such as Indonesia, Iran, Columbia, Russia, China and many more.
Rumors of crypto bans have caused major market crashes in the crypto market, one of them notably being the “South Korea’s Bitcoin regulation announcement” that crashed the 2017 bull market.
This is because crypto assets are a very small market compared to traditional ones and the smallest changes have the ability to strongly affect crypto coins. Hence, as countries ban cryptocurrencies and the crypto world loses large markets, it immediately gets affected by it.
- Supply and Demand
A factor that influences all assets and currencies is supply and demand.
The price of a crypto-asset is determined by the relationship between supply and demand.
As a rule, the higher the price, the lower the demand. As there are 17 million Bitcoins in circulation the Bitcoin price is, consequently, higher. However when you look at Tether, it has a total supply of 3 billion and is priced at $0.99.
As we’ve discussed earlier, the crypto market is relatively small. Although the number of crypto investors is growing every day, many people still don’t have a clue about cryptocurrencies.
They are not as widely used as traditional currencies and as a result market manipulations are much easier.
For instance, let’s take a look at the pump and dump schemes. In these, they artificially inflate the price of a small market cap crypto coin by buying a large amount. After that they sell their shares and the price dramatically drops. Most of these coins, unfortunately, don’t recover after that.
However, this scheme isn’t possible with large coins such as IOTA, Ripple, Bytom or Bitcoin.
In conclusion, we can say that the crypto market is affected by many factors including depiction by the media, mainstream adoption, regulations and so on.