The volatility of cryptocurrency prices is something that put many investors off in the past, but political and regulatory factors have changed in recent months, improving confidence and creating a surge in value.
This has seen an increase in the number of businesses that are now open to accepting and the amount of consumers willing to engage with the industry. This growing trend has seen more people than ever before learning more about crypto investment, including which crypto wallet best suits their needs and offers protection.
Security, storage type, access, and usability are all key factors for consumers exploring the best crypto wallets on the market. However, another important factor for new investors to consider is what can affect the value of cryptocurrencies.
Many factors can influence the value of cryptocurrencies, and some might have a devastating impact on one while making no difference to the other. Financial analysts have studied the effect of macroeconomic factors on crypto prices, with findings helping new investors get a better idea of what can influence price fluctuations.
Macroeconomic trends can influence investor sentiment, demand, and market liquidity. Factors such as interest rates can impact crypto value, with falling interest rates encouraging riskier investments such as crypto, and improving valuations. Conversely, rising interest rates can make traditional investments like savings accounts and bonds a more attractive prospect, reducing the demand for perceived riskier investments and causing price drops.
Inflation rates will also impact crypto prices with high inflation causing consumers to look at alternatives to fiat currencies. Low inflation removes the incentive for people to look at alternatives like crypto.
Other factors to influence the value of cryptocurrencies include economic growth, with periods of high economic growth encouraging investments in risk assets. With more people looking to invest, this drives prices higher compared with recessions where consumers move towards more traditional and less risky investment opportunities.
The status of fiat currencies will directly impact crypto values. Devalued currencies and currency crises’ can lead to a surge in consumers looking to diversify their holdings. When fiat currencies drop, it can encourage people to look at cryptocurrencies as a way to maintain value due to their decentralized nature.
Market liquidity and investment sentiment are key to crypto growth, and when central banks inject money into the economy it can encourage more speculative investment.
Risk appetite defines how likely investors are to explore riskier options. Economic uncertainty, market corrections, and geopolitical instability can all result in people shying away from assets like cryptocurrencies which are regarded as high risk.
Geopolitical influences can drive crypto adoption as consumers seek protection against currency devaluations and potential banking crises. Crypto is viewed as a hedge against risks posed by geopolitical situations including war and political unrest.
Government policies and regulations have also had a major impact on the value of cryptocurrency as evidenced by the recent political change in the US. Under the Biden administration, cryptocurrency businesses were not encouraged. Trump’s administration campaigned as a pro-crypto government, and the promise of a new regulatory framework that provides clarity and an environment that facilitates growth resulted in the recent record-breaking crypto values.
Continued tech development has seen blockchain technology being implemented across a variety of industries, making it a valuable asset and bolstering the strength of the cryptocurrencies that use it.
Conclusion
Consumers considering crypto investment must be aware of all the factors that can impact its valuation. Macroeconomic trends play a massive part in the financial market and its stability, and they also have a big influence on crypto prices.
