Cryptocurrencies By Market Cap

Bitcoin was the first cryptocurrency based on blockchain technology, which is the primary reason its popularity and commanding market share continues to impress investors:

Today, crypto investors can literally choose from more than 1,000 alternate cryptocurrencies (or “altcoins”) which are all composed of their own functions and specifications.  Other popular cryptocurrencies include: Ethereum (ETH), XRP (XRP), Litecoin (LTC), Tether (USDT), EOS (EOS), Binance Coin (BNB), and Stellar (XLM).

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A few alternative offerings are actually Bitcoin clones or “forks,” which involve a phenomenon that forces divergences in a crypto blockchain that result in a spin-off coin offering.  Nonetheless, Bitcoin continues to reign supreme in the world of cryptocurrency and we can visualize the size of its relative market share using the global crypto market chart shown below.

Cryptocurrencies: Pros and Cons

For bullish traders, a lot of rising on the positive benefits of cryptocurrency as an asset class.  Proponents of the space contend that cryptocurrency contains the ability to “remove the middle man” that is generally required in most consumer market transactions.  Here, the reference is made to third party entities that have amassed long-term trust within the financial system (i.e. credit card companies, private banks, or the government bodies that issue fiat currencies).  Overall, this can have the effect of lowering transaction costs and raising adoption levels within the broader market.

For crypto investors, this suggests cryptocurrencies may have much further to run before the current bull trend is complete.  Of course, this is a longer-term perspective but there are clear benefits for short-term traders, as well.  Assuming that the market believes the dominant trajectory will be higher, the positive outlook makes positioning stances using a “buy on tips” mentality likely to prosper.

On the downside, one of the criticisms that are often directed toward the cryptocurrency space is a perceived lack of stability.  Fortunately, some of these criticisms have been eroded now that the market share of cryptocurrency exchanges has become more highly diversified (see chart above).  This reduces the potential for price manipulation and can help to instill confidence in cryptocurrency as an asset class.

That said, many common investor concerns remain with respect to the level of price volatility that has already characterized most of the trends in the major coin offerings.  This type of outlook is often associated with greater levels of price volatility and this can be a major turn-off for many participants in the financial markets.  However, what tends to be missed in this part of the discussion is the fact that volatility can be a positive just as much as it can be a negative.

In other words, without price volatility, it would be impossible to make any money trading in the market.  By most accounts, cryptocurrency assets have plenty of price volatility to go around.  The key to successful trading in the cryptocurrency markets is to learn which macroeconomic factors are most likely to send prices in a specific direction (either upward or downward.  In the following section, we will cover some of these factors in greater detail.

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Factors Influencing Crypto Prices

Since the first commercial cryptocurrency transactions began in 2010, cryptocurrencies have unlocked many opportunities for consumers when it comes to making, managing, and securing transactions.  For crypto traders, different types of opportunities have developed as trends in speculative positioning have outperformed traditional asset classes (i.e. stocks and bonds) by a substantial margin.

The real question is whether or not this trend can continue, and this is why crypto investors must understand the underlying factors which generally cause digital currencies to rise and fall in value.  Next, we will look at five critical factors that can significantly affect the price trends of the cryptocurrencies as they trade in the market:

  • Supply and Demand: The balance between supply and demand is the major and most crucial factor determining the price of any cryptocurrency. It’s important to note that the supply of cryptocurrencies is limited.  So, when the demand for a cryptocurrency is high, market forces suggest the price will naturally increase.  However, the reverse scenario also applies when market prices are high:  Assets tend to become less popular and more difficult to purchase (so the incentive is to sell).
  • Mining Difficulty: Another aspect determining the value of cryptocurrency centers around the difficulties required in mining.  Ultimately this refers to the difficulty of looking for a hash below the given target on the network and this will often act as a counterbalancing mechanism in controlling the price of cryptocurrencies.  When the level of mining participation rises, the level of mining difficulty becomes more intense.  Conversely, when mining participation is lower, these difficulties will also decline in strength.
  • Perceived Utility: Additional factors that influence the price volatility of cryptocurrencies can be found in generalized market sentiment the varying perceptions of its value.  In other words, what market thinks of the viability of cryptocurrency is highly critical.  Unlike government-issued fiat currencies, price fluctuations in the crypto markets are influenced by perceived utility (or the ability to act as a store of value).  This concept refers to the sustainable functions of a crypto asset, enabling it to be used in consumer transactions or saved as an investment for a considerable time.  Can investors expect a cryptocurrency’s value to be greater once it is cashed-in at a later date?  If the answer is no, market prices are likely to decline.
  • Mass Media Hype: Just many other products in the market, price volatility in cryptocurrency is largely dependent on networking the individual news headlines that are devoted to the topic.  Generally, media reports about rapid increases in coin adoption are likely to drive prices higher while negative reports (i.e. security hacks in the network) could result in a massive drop without much warning.  Aside from the financial news, personal posts and trends in social media can also influence market sentiment.  Essentially, social media posts can inculcate eagerness and happiness but also instill fear and distrust.  Overall, purchasing pressure tends to increase when people are hearing about these instruments for the first time or when a social media influencer helps others discovering the advantages of cryptocurrency.
  • Improvements in Technology: Last, but not least, are the technological aspects that can have the effect of driving demand in the market.  Just like any other product or service, system improvements and the introduction of platforms with new advancements can pique the interest of both consumers and investors.  These events can even encourage new adopters of a certain crypto coin.  Widely publicized improvements in technology are often highly beneficial for those thinking about buying or using a digital currency, and this often inspires crypto traders to push market prices higher.

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Technical Chart Analysis

As a set of general rules, these factors help traders conduct a fundamental analysis of any cryptocurrency.  However, expert traders will often turn to technical strategies that are based on price chart histories when structuring individual trade ideas.  Essentially, technical analysis of the crypto markets can help traders to better understand dominant trends in price and valuation.  Some of the common approaches technical analysis expert traders use in the crypto markets include:

  • Trend Analysis
  • Moving Averages
  • Elliott Wave Theory
  • Harmonic Patterns
  • Fibonacci Retracements
  • Pivot Points
  • Ichimoku Analysis
  • Parabolic SAR
  • Indicators and Oscillators

Expert crypto traders often combine multiple techniques as a way of improving objectivity (and making more accurate price predictions before placing trades).  Many different examples could be cited here.  However, some popular technical analysis combinations include the use of Harmonic Patterns along with indicator/oscillator readings, or the use of Pivot Points in conjunction with Fibonacci Retracements.  Possibilities for alternative combinations are without limit, so each crypto trader is given an excellent environment in which to develop a unique trading style and approach.


Trader Summary: Crypto Trading Strategies

  • Cryptocurrencies are virtual currencies that can be traded seamlessly across national borders and use cryptography as the basis for transactional security.
  • Cryptocurrencies utilize decentralized technology systems that operate via verified blockchain networks (distributed financial ledgers).
  • Thus far, cryptocurrencies have had the effect of lowering transaction costs and this has helped raise adoption levels within the broader market.
  • Bitcoin was the first cryptocurrency based on blockchain technology but crypto investors can also access more than 1,000 alternate cryptocurrencies (or “altcoins”) on active trading platforms.
  • Using a brokerage account, retail traders and buy/sell cryptocurrencies and make a profit or loss from the results based on future changes in the price difference of each currency pair.
  • Several critical factors significantly affect the price trends of the cryptocurrencies as they trade in the market: supply and demand, mining difficulties, perceived utility, coverage in the mass media, and improvements in the underlying technology.
  • Traders will often use technical strategies that are based on price chart histories when structuring individual trade ideas.