Interpreting Trends in Cryptocurrency Markets

June 11, 2021
Jonah Bolden
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Cryptocurrencies are notorious for their volatility. One minute, a coin can be skyrocketing in price - and the next minute, it can crash harder than ever before. This is partly due to the ever-increasing presence of algorithmic traders, who use computer programs to automatically make trades based on input parameters. Because one set of parameters can be influenced by a single trade, that can instantly set all of these trades in motion. But equally important are the overall trends followed by institutional investors. These are the big money traders, who will invest tens of millions at a time when they sense the opportunity is there. Spotting these same trends could help you understand exactly when it's right to invest or sell a position. Here, you'll find three market trends that may serve as unique indicators for further investments.

1. Security Token Offerings

As cryptocurrency emerged as a leading opportunity for investment, more currencies began to pop up that utilized the blockchain for some novel technology. To entice new investors, those currencies offered initial coin offerings (ICOs) as a way to fund the company and secure a stake in that technology. However, ICOs quickly came under fire due to illegitimate companies finding ways to exploit these strategies to get cash infusions.

That's where security token offerings, or STOs, come into play. Since institutional investors want to make investments without risking a complete loss - a possibility with unregulated ICOs - financial regulating bodies have proposed to make some new currencies more investment-stable, with less of a chance of scams occurring. Three regulations must be complied with in the United States for an STO to occur, each detailed by the SEC. STOs are predicted to increase in occurrence as more technologies are developed for the blockchain, and may likely serve as a strong upward market trend.

2. Decreasing volatility

Bitcoin gained mainstream popularity when its price jumped over $10,000 per coin the first time, garnering media coverage and thousands of news articles with each price jump. But this was an extremely volatile time for the coin: every hour, the price fluctuated massively, leading many investors to write it off as an unstable investment. This issue of instability in price plagues cryptocurrencies, as traditional investors are constantly looking for opportunities that will slowly increase in price over many years. That's why the decreasing volatility of cryptocurrencies could be seen as a positive trend, as more investors will be willing to make a contribution if the price is relatively stable and increasing over time. Note that this may not necessarily apply to lesser-known cryptocurrencies, though there is a chance that a spillover effect from Bitcoin to these currencies may occur.

3. Venture capital interest in blockchain

Perhaps one of the strongest market indicators is the amount of venture capital investment being put toward blockchain or cryptocurrency-related businesses. Generally, venture capital tends to be the riskiest investment type, but also tends to be the most forward-thinking. This especially applies to investments in technology, where societal and financial rewards can be massive. If venture capital firms are making significant investments in cryptocurrencies or blockchain, then it's likely they believe the future will be filled with these types of businesses.

An even stronger indicator of cryptocurrency success is investment in education surrounding the space. If venture capitalists believe that it's worth educating the public about, then they believe it's an even stronger investment than simply investing in the businesses directly. When support from venture capitalists is high, then this likely serves as a strong positive market trend across currencies.

Understanding and predicting cryptocurrency markets is no easy task. Since so many factors go into pricing each cryptocurrency, and with regulations being introduced to help investors make more financially literate decisions, the playing field constantly changes. But with the potential market trends listed above and with some objective thinking about investments, you'll be able to make more informed decisions about your own investments in blockchain and in cryptocurrency.

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