Motive forces of cryptocurrencies (Part I)
Moving forces cryptocurrency (Part I)
In 2017, there was a sharp jump in prices for cryptocurrencies and growing interest of investors around the world. How do markets for cryptocurrencies continue to evolve, and how are the factors that drive price movements today changing?
Bitcoin and cryptocurrency markets have come a long way since the “magical internet money” of the early 2010s and the speculative ups and downs of the last few years. What once was mainly a playground for anarcho-capitalists, occasional enthusiasts and (in some cases) individuals engaged in illegal activities has become a thriving global industry.
Technological innovations based on cryptocurrency and blockchain technology have the potential to fundamentally reorient and reshape the world’s financial systems and are increasingly being used to do so; at the same time, Bitcoin and other cryptocurrencies are becoming increasingly popular for use in a variety of applications.
In other words, the cryptocurrency ecosystem has far more anchor points than before: inflows of new users, institutional capital and other types of investment have stabilized markets. Many forex brokers from our rating have organized CFD trading on cryptocurrencies. While prices of cryptocurrency are still fluctuating, volatility has been decreasing over time, especially in the Bitcoin market
However, now that the hype and speculation have less impact on prices – what are the driving factors behind the prices of Bitcoin and other cryptocurrencies?
Partnership, psyche and politics: drivers of cryptocurrency
Indexica, a firm that describes itself as an interactive web analytics platform used to convert global events into quantitative metrics, predictive indices and strategy signals, says that Bitcoin price drivers are now much more complex than in the past.
In an interview with Bloomberg, Zack Selbert, CEO of Indexica, said that “Bitcoin is part of the financial landscape in a very interconnected and mature way. This is also evidenced by the effects of changes in BTC prices on other financial markets. A study at Akdeniz University in Turkey in 2018, published in the Eastern Journal of European Studies, showed that there is a causal relationship between the price of Bitcoin and the movements of the S&P 500 index. The results show that a negative shock in Bitcoins results in negative and positive shocks in the S&P 500 index, and a positive shock in Bitcoins results in negative shocks in the S&P 500 index
Researchers have concluded that a significant number of investors in the S&P 500 market have sufficient information about the Bitcoin market, closely monitor technological advances, and that there is great interest in computer applications that attract the attention of users.
However, the study also noted that there is no causal relationship between negative, positive and positive negative shocks between Bitcoin and gold, Brent oil, the U.S. dollar and the BIST100 index, and that Bitcoin as a currency does not appear to have been significantly affected by macrofinancial events.
Bitcoin Markets: A Brief History
Now that Bitcoin has a great history, everything can make it move, just as anything can make gold or currency move. The price of BTC and cryptocurrencies in general can be changed through government regulation, key market influences, theft and break-ins.
The price of Bitcoin is influenced by new phenomena such as crypto whales, “pump and dump”, and even geopolitical forces such as the U.S.-Chinese trade war or instability in Hong Kong. In other words, Bitcoin no longer exists in a vacuum. In the past, markets for cryptocurrencies were relatively isolated from developments in the outside world. There was no institutional capital flowing in and out of cryptocurrency markets; they were alto-coins, but the ecosystem was much smaller.
In the old days, cryptocurrency markets seemed to be almost entirely made up of retail investors who were interested in these “magic internet money”. There were small groups of people and industries who relied on Bitcoin to carry out illegal transactions. Then, about two years ago, a wave of speculative agiotage captured the crypto-space. Two years ago, the market was much more sensitive to speculators, wild unbridled demand from retail investors and a host of fraudulent transactions, “pump and dump”, and so on
The speculative bubble that formed at the end of 2017 burst unceremoniously. This was followed by more than a year of stagnation and falling prices, a period that became known as “crypto-winter”. In 2018, during the crypto-winter, prices appeared to be driven by a lack of usage options, through deflationary expectations, regulation, hacking and general negative sentiment.
Partnerships and major players entering the wider crypto-ecosystem can move BTC
Now, however, Bitcoin has become a much more sophisticated mechanism. The Bloomberg study found that Bitcoin’s prices are moving due to competing digital technologies, cryptocurrencies and new blockchain technologies. One example of this was the recent partnership between Mastercard and blockchain company R3. While the partnership between Mastercard (a well-known company not involved in cryptographic payments) and R3 (a corporate blockchain development firm) does not have a direct link to Bitcoin, the fact that blockchain technology is being talked about in the context of something as big and familiar as Mastercard can have an absolutely positive impact on Bitcoin’s price. In fact, Bitcoin’s price showed an upward trend for a few days after the announcement of the partnership between the two companies: On September 11, when the news of the partnership appeared, the price of BTC fluctuated about $10,150, and by September 13 it had grown to almost $10,400
Prices can fluctuate greatly depending on the statements of major players in the industry, as was the case at the beginning of the year with Microsoft. Another example is the announcement of the Facebook Libra project in June this year. Less than two weeks after the official project document was published in mid-June, the price of the BTC reached its annual maximum of almost $13,700. In the fall, when some participants left the project, Bitcoin fell to $8,000.