Have you ever felt that cryptocurrency prices rise and fall for no apparent reason? The factors driving cryptocurrency prices are not only important, but can potentially be leveraged for profit. TotalCrypto will examine the key factors moving crypto prices in the market and share the strategies we use to benefit from them.
- 1 Reason 1: The Accessibility Of A Crypto
- 2 What Is The Impact Of A Big Exchange Listing?
- 3 How Can You Take Advantage Of The Big Exchange Listing Phenomenon?
- 4 Reason 2: The Cryptocurrency Rumour Mill
- 5 Substratum Has Their Twitter Account Hacked
- 6 Reason 3: The Social Media Bandwagon
- 7 Reason 4: Hardware Wallet Support
- 8 Reason 5: Roadmap Milestones, Rebranding & Conferences
- 9 Reason 6: Pump & Dumps
- 10 Conclusion
Reason 1: The Accessibility Of A Crypto
Price increases in cryptocurrencies are mainly driven by the laws of supply and demand. Put simply, the more people that can access a cryptocurrency, the higher the demand and price is likely to be. Yes, emotions like hype play a role in the demand for a crypto. However, we must accept that most people do not like creating new accounts at unknown exchanges to get access to a new crypto. What do most investors do? They wait until the new cryptocurrency is listed at an exchange they already have an account at and buy later.
With cryptocurrencies just coming out of their initial coin offering, most do not get a big exchange listing right away. Instead, these cryptos usually get listed on smaller exchanges first and larger exchanges like Binance later on. If we take Holochain as a case study: It first came out of ICO and was publicly traded 18 days before this article was written. Since public trading began, HOLO has been listed on 4 different exchanges: IDEX, Hotbit, Fatbtc and Radar Relay. How many of these cryptocurrency exchanges have you heard of? Chances are that you have heard of none of them.
In cryptocurrencies, brand trust matters. Many veterans in the cryptocurrency markets have been burned by unknown exchanges. A recent example of this was in February 2018, when the unknown exchange BitGrail lost $195 million worth of Nano tokens to hackers. With this in mind, it is not surprising that many crypto investors avoid using small exchanges and wait for new cryptocurrencies to be listed on exchanges like Binance.
What Is The Impact Of A Big Exchange Listing?
Right now the biggest exchange listing a cryptocurrency can get is on Binance. To demonstrate the power of a Binance listing we’ll look at QLINK, which was first listed on the exchange on the 26th March 2018.
What happened to the price on QLINK on the 26th of March? The first thing you will notice is that the price shot up from $0.109 to $0.24 per token. That’s right, QLINK rose in price 120% due to a Binance listing. You will notice that the price spiked then fell rapidly. Overall, the Binance listing was positive for QLINK and you can see that trading volume increased significantly.
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These Binance listing spikes happen time and time again. Pretty much every time, the price of the listed cryptocurrency spikes and then settles at a level higher than before the listing. Loom Network were also listed on Binance on the 2nd May 2018.
Guess what happened? On the day of the Binance listing, the price of LOOM surged from $0.295 to $0.756 a token. That’s a 156% price increase in a day at the peak. As with most Binance listings, the sharp spike in price was short lived. However, LOOM was still trading at a higher level then before the Binance listing.
Feel free to check out the impact of big exchange listings for yourself. You should be able to see that there is a common pattern of a big spike and then a pull back to a level higher than before the listing.
How Can You Take Advantage Of The Big Exchange Listing Phenomenon?
The way the TotalCrypto Team take advantage of Binance listings is by buying promising cryptocurrency projects before they are listed on Binance. If a Binance listing is announced, we just transfer the crypto to Binance and sell into all those buy orders and wait for the price to drop. Once it does, we can quickly buy back in and increase our stack of tokens in the project.
The trick is finding trustworthy cryptocurrency exchanges that list coins quickly after they come out of ICO. TotalCrypto uses Kucoin extensively for this purpose. Indeed, QLINK was first publicly traded on Kucoin. That’s nearly 3 months before Binance listed the project.
It certainly is possible to do very well from Binance listings. However, we recommend you do your research on smaller exchanges before making any moves. Conversely, if a new exciting cryptocurrency is listed on Binance, it is probably a good idea not to buy it straight away and wait for a more reasonable entry point.
Reason 2: The Cryptocurrency Rumour Mill
You should know that the cryptocurrency markets are full of fake news, hacks and hype. Crypto maybe the only industry where it’s common to have an announcement of an announcement.
It’s very common in cryptocurrency for projects to announce there is ‘massive’ news coming and for the price of the cryptocurrency to surge. In April 2018, Verge created maybe one of the bigger news driven pumps. The announcement of the announcement was:
Speculation ran rife across the internet for weeks, with investors trying to guess who the partnership was with.
On April 5th, Verge was trading at just $0.05 per coin. Verge actually pushed the announcement back to the 17th of April in the end and the price peaked at $0.11 per coin. In less than 2 weeks the Verge price shot up 120% based on partnership speculation and hype.
On the 17th of April Verge officially announced that they had partnered up with PornHub.
What happened to the Verge price? Well, the price fell off a cliff. Falling from $0.11 before the announcement to $0.069 later on the day of the announcement. To put it another way, Verge lost 37.2% of it’s value in a single day due to the partnership announcement not living up to expectations.
How can you take advantage of the cryptocurrency rumour mill? Well, the strategy we use at TotalCrypto is to buy the rumour and sell the news. Over and over again, we see cryptocurrency prices increasing quickly in anticipation of ‘big news’. When the news breaks, it usually doesn’t live up to expectations and the price then returns to more reasonable levels.
Substratum Has Their Twitter Account Hacked
The Substratum Twitter hack on the 2nd of May 2018, shows why you shouldn’t always believe what you read and the lengths some people will go to manipulate a cryptocurrency price. The announcement made on the official Substratum Twitter account proclaimed that the SUB token was going to be added to Coinbase.
The news was not supported by any Coinbase sources, which should have immediately raised a red flag. However, many investors jumped on the news thinking that the ‘news’ was real and the Substratum price was going to soar. This one fake announcement saw the Substratum price spike from $0.84 to $0.97 a token within minutes. In percentage terms, this flash price increase was 15.47% flash increase and the price dipped below pre announcement levels very quickly once the news was revealed to be fake.
Fortunately, the Substratum team reacted very quickly and revealed that they had been hacked. Needless to say this resulted in a rapid fall in their token price.
The lesson here is that you should cross reference any bit of information you are using to make cryptocurrency investment decisions. Remember things are not always what they seem and many people are financially incentivised to spread fake news.
Reason 3: The Social Media Bandwagon
There are many great social media influencers who really care about cryptocurrency. Fundamentally, it makes sense for a crypto YouTuber to talk about coins or ICOs they have personally invested in and are passionate about. The other side of this, is that influencers with large followings are likely to inadvertently pump up the price of cryptocurrency’s they are excited about.
Naturally, a proportion of a YouTuber’s audience is likely to be swayed by an influencers enthusiasm for a cryptocurrency and want to add it to their portfolio. Some YouTubers actually have around 200k followers and their endorsement of a cryptocurrency can potentially lead to millions of dollars being invested in the project. The problem is that when a ‘hot tip’ is given, many audience members will go out and buy the cryptocurrency at the same time en masse. A spike in demand usually leads to an increase in price. This results in many investors buying at over inflated prices.
There are some social influencers who the TotalCrypto Team really respect. However, if a cryptocurrency is being recommended by multiple influencers then we like to stay away until the hype has settled down. Yes, sometimes this means you miss the train. But remember there is always another train to hop on in cryptocurrency and that not buying at all is a much better outcome then buying too high.
Do be careful with social influencers. Just because someone has 10’s of thousands of subscribers, it doesn’t mean they are good. Indeed, several YouTubers led their audience into the Bitconnect scam and people did lose a lot of money.
TotalCrypto’s strategy is to invest in projects we like and believe in, rather than blindly following the ‘tips’ of other influencers. Use influencers as a resource to put interesting projects on your radar.
Reason 4: Hardware Wallet Support
The most secure way to store cryptocurrency is using a hardware wallet and the two most popular brands are Trezor and Ledger. Quite a few investors are reluctant to take big positions in cryptocurrencies that they cannot store in the safest way possible. This means that when a new cryptocurrency is supported by a hardware wallet, you can expect a bit of a price increase.
Reason 5: Roadmap Milestones, Rebranding & Conferences
On each cryptocurrency’s website you will usually find a roadmap detailing the milestones for the project. An example of a large milestone is the launch of a crypto’s main net. The one thing that approaching roadmap milestones, rebranding and conference have in common is that anticipation of these events usually leads to an increase in price.
The TotalCrypto Team usually like to buy the rumour and sell the news when it comes to these types of events. Sure sometimes holding would yield better profit but you don’t run the risk that the crypto community will be disappointed by the event.
Reason 6: Pump & Dumps
Put simply, a pump and dump is a form of cryptocurrency market manipulation. Usually these are a group of people banding together with the aim of manipulating the price of a cryptocurrency. The pump is started by the group buying en masse which causes the price to increase. The group hopes that investors will see the price rise and fear of missing out (FOMO) will lead to buying. The pump and dump group will then sell into the FOMO’ers and take profit.
The TotalCrypto Team have written a dedicated article all about pump and dumps, how they work and how to spot them. We do recommend you learn more about it and how to avoid being dumped on.
The truth is that cryptocurrency markets are currently driven by emotion and expectation, rather than underlying fundamentals. This is actually perfectly natural in a new market like cryptocurrency. If there was never a gap between price and technology, then all new tech would be valued extremely low. In time, TotalCrypto expects things to change and for crypto prices to driven more by underlying fundamentals.
TotalCrypto believes that the six reasons outlined above are the main drivers of cryptocurrency price increases within the crypto market. External macro trends also have a large impact on cryptocurrency prices, but we will cover this extensively in another article.
TotalCrypto understands that cryptocurrencies are an exciting, but daunting opportunity. Our mission is to help you navigate through the cryptocurrency markets. The Team spends every day analysing and researching cryptocurrencies, so we can share our insights with you. If you want help keeping up with cryptocurrency market trends, news and more, then sign up to our weekly newsletter.