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Regulations! They are a vital part of modern business. They standardize and control transactions and procedures. As a result, more manipulation-free details are known about assets. But there is no centralized authority in the world of cryptocurrency, meaning there are fewer regulations. This makes it more difficult to speculate on the price of assets. In fact, speculation can be hazardous.
You need to look at each project individually and analyze its presence on the market. Many factors can affect valuation. In this article, you’ll find information on all the factors that influence the price of a cryptocurrency. You’ll also discover why traditional price speculations are incompatible with cryptocurrency, often producing wildly inaccurate and even harmful results.
Traditional Price Speculation
In 2007, subprime mortgages collapsed and caused a global financial crisis. Nobody saw it coming. Well, that’s not entirely true. A few experts had looked at the data and made accurate forecasts. They saw what no one else could because they analyzed the assets. Everyone else was busy looking at the mechanisms that govern price actions, a practice known as price speculation. Traders often look for short-term profits rather than long-term investments. This is why most people were unprepared for the crash. The conclusion is that price speculation can be a risky practice.
Crypto Price Speculation
Cryptocurrencies are extremely responsive to media announcements. It only takes one social media post from a celebrity to alter their price. The whole industry lives and dies on cycles of hype and criticism. Take a look at the following recent examples of price fluctuation as a result of business announcements:
Tech giant and leader in global e-commerce, Amazon recently posted an offer of employment on its website. The company’s job board post describes their hunt for an “experienced product leader to develop Amazon’s Digital Currency and Blockchain strategy and product roadmap.”
As a result of this post, the price of BTC jumped more than 14 percent in 24 hours, nearly reaching USD 40,000 per unit before settling closer to USD 37,000.
In March 2021, Binance (BNB) announced the launch of its own crypto payment service, Binance Pay. Comparisons have been drawn between Binance Pay and its highly successful fiat predecessor, PayPal. Naturally, there was great anticipation in the industry. This announcement followed a series of exciting technical and collaborative developments. Trading platform, Bitmex announced its BNB Futures listing (Futures are agreements between traders to buy and sell assets for a specific price at a specific time). Not long after this, BNB reached an all-time high of USD 342 at that point. This led to BNB replacing Tether as the third highest-ranked cryptocurrency on CoinMarketCap.com.
The Hazards of Price Speculation in Crypto Communities
As powerful as social media is for any venture, it can damage projects by spreading inaccurate information. This has been a major criticism in recent times. The Covid-19 pandemic highlighted the negative effect social media could have on society. Naïve, uninformed, and inexperienced users often comment on subjects they should avoid. Moreover, some of these users are malicious, seeking to disrupt the status quo for profit. Others simply want to excite chaos. It is the same in the world of cryptocurrencies. Price speculations that start trending can attract a lot of negative attention. This can ruin a project. All community members should avoid posting such comments for the benefit of the entire community.
The crypto industry lives and dies on price speculation. The mere mention of gains can create a speculative bubble. This is a situation in which the price of an asset exceeds its value by quite some margin. As with every bubble, there is a lot of short-term profit. But the consequences in the long-term are often disastrous. Look at the housing market crash in 2008. The bigger the bubble, the deeper the depression. In centralized financial institutions, regulations are introduced to protect against similar events in the future. But this is not yet the case in the world of cryptocurrency.
Crypto exchanges are an important part of the industry. They are responsible for the vast majority of crypto transactions. But unfortunately, they are not regulated as well as they should be. This means there is no centralized authority monitoring market volatility or capping assets at both high and low thresholds. As a result, prices often move up and down with significant amplitude, leading to extremely unstable exchange rates.
Price speculation erodes the level of trust in both communities and projects. It can also reflect badly on the “expert” making the speculation. When prices fluctuate, the effects can be worsened by the influence of mass media channels. This gives wider audiences, who might have been attracted to cryptocurrency, the impression that crypto is unstable. Of course, mass adoption might make this less common. As network transactions increase, exchange rates might become more immune to price speculations. Higher transaction rates are expected to lead to less dramatic fluctuations in price.
There are several ways you can insulate yourself from the harmful effects of media hype and contagious panic. Moreover, these same practices will give you a better chance of making the right decisions when looking to invest.
Though certain players attempt to manipulate the market with disingenuous announcements, you shouldn’t completely disregard all news. Rather, it means you should look for those that are official with actionable roadmaps. Reputable teams behind crypto projects provide updates to the public via their social media platforms.
You cannot be expected to know every expert working in the industry. And often, it isn’t easy to distinguish between an expert and an amateur. One thing you can do to guard against this is cross-reference information. If you read a social media post that seems important, check what other experts think about it. Never take information at face value and try to avoid getting swept up in the hype.
Crypto communities are essential to the interpretation of announcements and overall market activity. Many of their members are industry experts with years of trading experience. As a member, you can instantly poll the community and get an accurate consensus on any situation. Communities thrive when every member prospers. If one fails, the community fails. So, it is in the interest of everyone involved to ensure all information, not just price speculation, is correctly interpreted.
Key Takeaways
Price speculation often does more harm than good. It should be avoided whenever possible. By the same measure, it is important to not comment on a project without knowing all of the facts. Often, news stories evolve as time passes. More information is revealed, and the picture changes. But this phenomenon does point to the way forward. Social media is a powerful way to communicate with a global audience. If users all come together and support their project with positive posts, the outcome will be a better public image. Many projects are successful because of the strength and determination of their community.
Instead of speculating on price, provide constructive feedback. Project teams know when a good idea is a good idea, regardless of where it comes from. Legit teams recognize the necessity of giving their community what it wants. But members need to communicate this effectively. Another thing you can do is post your support for new developments and partnerships. Get behind your projects’ initiatives by clicking the “like” button and sharing their posts.
If you really want to know whether or not a project has potential, look at its roadmap for innovation, development, and expansion. It is equally important to look at its track record in the industry. Past performance is not evidence of future growth, but it is a metric that should be considered.
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