What Makes Crypto Go Up and Down? Markets Explained
What makes crypto go up and down? When will crypto go back up? Here’s a brief explanation of how crypto markets function.
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like any other goods people trade. Generally speaking, if the demand outpaces the supply, the value increases.
Most cryptocurrencies implement mechanisms to limit supply and prevent inflation. For instance, Bitcoin (BTC) is designed to have a fixed maximum supply (21 million BTC), after which mining more becomes impossible.
Demand depends on the number of people investing in crypto. As interest in cryptocurrencies and crypto investments grows, so does the demand, driving the value up.
Similarly, if investors consider the investment too risky, they may pull out and reduce the demand, causing a drop in value. If you’ve ever asked yourself, “Why is the crypto market down this summer,” it is primarily due to external circumstances like gas prices and inflation causing investors to pull out.
Crypto Market Perception
The market perception of a product, asset, or service is the amount of value an individual assigns to it. Although not the same concept as market value, it is closely related; the higher one’s market perception, the more one is willing to pay for it.
In other words, if you’re asking yourself, “Why is crypto going up,” it is because an increasing number of people have a positive market perception of it. A famous example occurred in November 2021, after the launch of the first Bitcoin exchange-traded fund. This event caused Bitcoin to reach its all-time high of $65,000.
However, the inverse is also true. When crypto markets are going down, it is typically because specific coins have lost market perception due to negative events, such as bad publicity, unethical behavior from project leaders, or security breaches.
Losing market perception reduces the demand for a cryptocurrency and drives its value down.
