Why does cryptocurrency price change? | research by google



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Why does cryptocurrency price change?

In this guide, we break down how and why the cryptocurrency prices are changing all the time and what factors come into play.

Jordan Heal

Cryptocurrency price is volatile, and the prices change all the time. In this guide, we take a look at why they change and why they are different depending on the exchange you are using.Before we begin, it is worth noting that if you are checking crypto prices on a site like CoinMarketCap, it will be different to an actual exchange. This is because it collates all the data from several exchanges to provide the most rounded price available. However, since it has to process all this data from exchanges, it isn’t always up-to-date.  It’s also worth noting that different exchanges have different price algorithms. This will also be a factor in price listings since some may process faster than others.

Let’s take a look at three things that impact cryoptocurrency price.


Liquidity

Liquidity refers to the availability of liquid assets to a market or company. In the world of crypto, liquidating an asset means trading it for fiat currency (a national currency). However, the amount you will receive for liquidating an asset will largely depend on the market and exchange.

Trading volume is one aspect that affects liquidity pricing. Trading volume refers to the number of shares (or units of crypto) transacted every day. Since there is a person selling for every one person buying, you can think of trading volume as half of the number of transactions made in a day.

If you look at different exchanges, you will see that each one has a different trading volume for Bitcoin. Whilst the Bitcoin price isn’t drastically different across these exchanges, there are slight variations.

Be sure to look out for the order book on each exchange. An order book is a collection of live trading that occurs when a trader sets a price that they will buy/sell an asset at. As you can imagine, there are a lot of trades occurring at every moment. This is because the cryptocurrency trading market is open 24/7. Each of these traders will be buying and selling at prices they are speculating, resulting in price movements up and down at all hours of the day.

If liquidity is low overall, the order book will be less stacked. This in turn affects the price of cryptocurrencies as trading volume goes down in tandem. So, remember that if liquidity is down, the prices will be changing.

2) Media and reputation

Whilst there are factors that stem directly from the markets that affect the pricing of assets, the media can also influence them. In particular, if a cryptocurrency gains mainstream attention, there could be a sudden surge in popularity. This then spurs traders to start avidly buying that token, which drives the price up. Equally, the opposite can occur. If a token or an exchange gains a bad reputation in the media it can prompt traders to cash out before the price plummets and they lose more money.
Category
Cryptocurrencies
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