If you're new to the world of crypto, you might be wondering: wen pump? It seems like an easy question to answer, but actually, it's not. There are so many factors that go into determining whether a particular cryptocurrency is going to rise or fall in value that predicting future price action is pretty much impossible.
However, there are some common things among successful cryptocurrencies that can help guide your investment decisions (and avoid disaster). In this article, we'll look at why crypto prices rise and fall, how past performance doesn't predict future price movement, as well as some other useful tips for evaluating potential investments.
Cryptocurrencies are volatile
The volatility of cryptocurrencies is the main reason many people invest in them. Because these markets are new and unregulated, they’re subject to wild price swings that can make investors rich and poor overnight.
That volatility will decrease as more people adopt cryptocurrencies, and as governments decide how to regulate this new asset class.
Past Doesn't Really Mean Anything
The past and present performance of a cryptocurrency are not indicative of its future performance.
The historical price of a cryptocurrency is an important indicator, but it’s not the only one. All other information about the project should be considered as well.
You should never invest in a project just because it has done well in the past or is doing well now, since there are no guarantees that this trend will continue into the future.
Cryptocurrencies are highly volatile by nature; this means that their prices can change drastically within minutes or hours, which makes them unsuitable for short-term investments. Unless you have sufficient funds to weather such massive fluctuations without worrying about your portfolio value going down significantly (or even losing money completely).
Price charts are meaningless
A price chart is a visual representation of the price of an asset over time. It can be used to help guess future price movements or to see how prices have moved in the past. The problem is that they are not predictive, but rather reflect reality—a fact that many traders seem to forget when they look at them. They mean nothing to an average trader like you and I.
The first thing you need to understand about cryptocurrency (and all other financial markets) is that it’s impossible to predict what the next big move will be or whether it will happen at all.
There are many reasons why this could be so:
- Fluctuations in supply and demand for any particular cryptocurrency affect its value very quickly and unpredictably;
- Large investors such as whales can move markets significantly with large buys or sells;
- Markets are largely driven by emotion—fear or greed—which makes them unpredictable on any time frame
Supply & demand of cryptocurrency is important
As you can see, cryptocurrency prices are not just based on fundamentals, they’re majorly driven by the supply and demand for each currency.
This is why it’s so hard to predict how much a cryptocurrency will be worth. If all of your friends have started buying Bitcoin, you might think that it would go up in value; but if everyone else starts selling, then it may go crashing down. Similarly, when something hits the news (good or bad), people tend to react in ways that affect the price of crypto assets.
For example:
If there’s been some kind of major hacking or scandal related to an exchange like Coinbase or Binance, then people might worry about security issues and stop buying cryptocurrencies until they feel more confident again. This would cause prices to fall temporarily until those fears subside and everyone starts buying again!
On the other hand, if someone with lots of followers announces support for a specific token sale on Twitter...the price could skyrocket overnight!
Look at the project team to gauge its potential
A good team will have experience in blockchain technology, as well as other fields like cryptography and finance. Crypto is coders' playground. Check if some cool developers are a part of the team.
The second step is looking at their vision for the future of cryptocurrency—and how they plan on making it happen. If their roadmap is full of fantastical ideas about changing the world through decentralized apps that solve real-world problems, then you know you’re looking at something great!
Next comes communication skills: does this team engage well with the community and answer all questions regarding their solution? Is there enough transparency regarding financials? Can someone from outside verify what’s going on behind closed doors with this company?
Look for real-world uses
When looking at a cryptocurrency to invest in, it's important to look beyond the price. If you're wondering how to predict the next cryptocurrency boom, this is where your focus should be.
When looking at a project, ask yourself: what will be the biggest use case for this technology? Is there an existing market that can be disrupted by this new technology? If so, who are they competing against and why do they have an edge over their competitors? What kind of team is behind this project? How much money is being invested into it and how much time/effort/money are they putting into developing it? And finally...Is there any sort of community around this project that shows promise or has been growing steadily over time (despite recent bear markets)?
Just Remember that cryptocurrency investment is risky, and you could lose your money. That said, if done correctly (that is, with appropriate research), investing in cryptocurrencies can provide a better return on investment than traditional stocks and bonds while being significantly less risky.
Crypto prices will boom again?
If you're looking to get in on the ground floor of a cryptocurrency that will make you rich, look no further and start investing for the long term. Cryptocurrencies have been around for more than a decade, giving investors plenty of time to prepare for the next boom.
It’s not easy and it may not always work but if you keep asking questions, you should be able to increase your chances of success. If nothing else, the process will give you a greater understanding of what drives crypto prices up or down and that knowledge alone can be valuable whether or not any particular investment pans out!