Understanding the Economics of Cryptocurrency Trading
Here in you are going to find the guide to take you through the steps to take towards starting out on your cryptocurrency trading. Particularly, we will be taking a look at the economics of 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.
The first of these hat we will take a look at is that factor of supply and demand and how it gets to determine the prices of cryptocurrency. This factor or aspect, supply and demand, can generally be considered to be one of the fundamental ones that will sure have an impact on the price of any cryptocurrency. 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. The circulating supply for Bitcoins stands at over the 16 billion coin mark but still the number of bitcoins there are available in the market is still low when compared to the others. It is as a result of the low supply there is for bitcoins weighed against the high demand that this cryptocurrency has that we see the cryptocurrency surging ever in its prices.
One other of the factors that gets to determine the prices of cryptocurrencies in the market is that of their utility as we have already seen mentioned above. Utility can generally be said to be the usefulness of the cryptocurrency. By and large, the more useful a cryptocurrency is, the more valuable it gets to be perceived and 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. Talking of the mining difficulty, this basically refers to how hard it is for one to be the next one to add a block to the blockchain and as such receive the reward for doing this. Generally, a lower mining difficulty means ease of mining and adding blocks to the blockchain and this means there will be an increase in the rate of supply and as such have a downward pressure on the price and the converse is the case in case of a higher mining difficulty.