An Analysis of Factors Affecting Cryptocurrency Prices

This essay examines the factors influencing cryptocurrency prices in online trading. It delves into the impact of trading volumes, market volatility, and the attractiveness of cryptocurrencies. The essay highlights how trading volumes, measured by lot sizes, affect prices, with increased volumes generally leading to price increases. It also discusses market volatility, both short-term and long-term, and its fluctuating impact on prices. Furthermore, the essay explores the role of attractiveness, measured by social media trends and search interest, in driving cryptocurrency prices. The unpredictability of the crypto market necessitates understanding these dynamics for effective trading strategies. The essay references various research papers to support its arguments, providing a comprehensive analysis of the crypto market and its price determinants.

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Cryptocurrencies: Factors affecting Cryptocurrency Prices When Trading Online
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Cryptocurrencies: Factors affecting Cryptocurrency Prices When Trading Online
Introduction
Numerous trends are happening in the Modern-world resulting from the highly advanced
technological innovations and desire to diversify job opportunities. One of the significant fields
established from technological advancement is the use of cryptocurrency. The term
cryptocurrency illustrates a token, purposefully invented for general or limited medium-of-
exchange and issued through a cryptocurrency system. However, because of limited trust among
individuals, a collectively maintained ledger that utilizes cryptography is used to curb trust
issues. The invention of cryptocurrency has attracted online trading in which individuals
speculated price movements through Contract for Difference (CFD) accounts (Pernice, 2021).
Nonetheless, when trading, there are several factors that traders consider to ensure high profits.
One of the significant factors they consider is the price of cryptocurrencies.
Attention-grabber
Cryptocurrency has evolved to be the biggest buzzword of the business market in recent
years; blockchain-based technology is considerably rising and is estimated to cross over $2
billion in 2021. However, in recent years, individuals have devised ways of earning a significant
amount of money through cryptocurrency trading without lifting a finger.
Background or historical details, and significance of topic:
The name cryptocurrency was first recognized in 2008 after the invention of bitcoin-a
cryptocurrency that facilitated the connection of individuals through peer-to-peer digital
platforms to issue and transfer digital tokens among themselves through a secure process
facilitated by cryptography (Pernice, 2021). The peer-to-peer connections illustrate that there is
no intervention from any financial system or government. The platform is a self-organized

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unified set of nodes, in which each node denotes a buyer or a seller. Moreover, after the
invention of cryptocurrencies, there have been increasing online transactions and trading taking
place all over the world. However, many individuals lose while trading because they do not
know the market dynamics and price influencers.
Thesis
The increase in cryptocurrency trading requires an effective understanding of the crypto
market and prices. This essay determines factors that influence the price of cryptocurrencies
when trading.
Main Point #1
Trading Volumes
Trading volumes is one of the factors posited to affect the prices of cryptocurrencies. The
trading volumes expressed in lot sizes affect the price of cryptocurrencies; for instance,
individual trading using 1 lot size will either win or lose a higher amount than an individual
trading using 0.01 lot size. The extensive research by Sovbetov (2018) denotes the significant
effect of trading volume on the prices of cryptocurrencies. In the research, the increase in trading
volumes increases Bitcoin, Ethereum, Litcoin, and Monero cryptocurrency market. Significantly,
Poyser (2017) denotes that lot sizes hugely impact the price of cryptocurrencies in the crypto
market by either raising or lowering the prices of cryptocurrencies. Moreover, the research by
Gemici and Polat (2019) demonstrates the considerable impact of volume size on the prices of
cryptocurrencies. According to Gemici and Polat (2019), there is a unilateral causality
interrelation observed on negative shocks in Bitcoin prices to trade volume and also from the
positive shocks in trade volume to price at 1%.
Main Point #2

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Market Volatility
Market volatility is another considerable aspect that influences cryptocurrency prices.
Volatility denotes the degree to how radically the market prices change in a period of time. A
significant number of researches indicate that the cryptocurrency market is highly volatile
resulting in fluctuations in cryptocurrency prices. The research by Sovbetov (2018) reveals that
the volatility of the cryptocurrency market is one of the main determinants of cryptocurrency
prices both in long- and short-term markets. According to Sovbetov (2018), the impact of
volatility is negative; for instance, any unit increase in volatility of the market results in a drop of
Bitcoin by 0.5 units, Dash by 0.02, Ethereum by 0.15 units, Litcoin By 0.02 units, and Monero
by 0.01 units.
Considerably, Poyser (2017) denotes that the prices of cryptocurrencies depend on
market volatility. The market includes short-run and long-run volatility; the short-run positive
factors such as Twitter a decrease in cryptocurrency prices. On the other hand, long-run volatility
as illustrated by the VEC model reveals a positive relationship of cryptocurrency prices with
circulating Bitcoins and is negatively associated with the S&P500 index. However, when the
market is highly volatile, it is easier to make a considerable amount of money as well as losing a
huge amount of money compared to when the market is less volatile. Furthermore, the empirical
research by Kurihara and Fukushima (2018) denotes that the short-term and long-term volatility
of cryptocurrencies more so Bitcoin influences prices differently. According to Kurihara and
Fukushima (2018), both short-term and long-term volatility has an impact on the prices of
cryptocurrencies. Therefore, traders are advised to pay attention to the two volatility movements.
Main Point #3
Attractiveness

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Attractiveness is another significant price driver of cryptocurrencies. Attractiveness
denotes the cryptocurrency attributes that make it viable to trade. Poyser (2017) illustrates that
the Google trends and Twitter sentiments measure the attractiveness of cryptocurrencies. A high
number of searches increase the influential characteristics of cryptocurrencies, thus, influencing
their prices. Considerably, Sovbotev (2018) illustrates that the attractiveness of cryptocurrencies
in social networks impacts their prices positively. According to Sovbotev (2018), there is a
significant impact of cryptocurrency attractiveness in the long run across all cryptocurrencies
except Dash. An increase in one unit of the attractiveness of Litcoin, Monero, Ethereum, and
Bitcoin results in 0.07, 0.05, 0.24, and 1.27 units increase in long-term prices respectively.
However, attractiveness in the short run reveals an insignificant estimate across all
cryptocurrencies except for Bitcoin that has an estimate of 0.14 at a 10% significance level.
Moreover, the research by das Neves (2020) illustrates the vital influence of attractiveness on
cryptocurrency prices. According to das Neves (2020), the short-term and long-term dynamics
within attractiveness aspects denote that an increased interest in cryptocurrency such as Bitcoin
results in a rice increase. Likewise, an increased market mistrust results in the collapse of the
cryptocurrency.
Conclusion
Cryptocurrency trading is a significant way of making money online; however, certain
factors affect the market making it hard to predict the prices of the cryptocurrencies. Some of the
known factors that influence cryptocurrencies prices include trading volumes, market volatility,
and attractiveness. Trading volumes are determined by lot sizes; an increase in trading volume
increases the prices of most cryptocurrencies. Moreover, market volatility expressed by short-
term and long-term market results in fluctuations of cryptocurrency prices. Attractiveness on the

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other hand impacts the prices of cryptocurrencies positively. The unpredictability of the
cryptocurrency market calls for effective strategies that can help in understanding the market
dynamics and predict the prices of cryptocurrencies.

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References
das Neves, R. H. (2020). Bitcoin pricing: impact of attractiveness variables. Financial
Innovation, 6(1), 1-18.
Gemici, E., & Polat, M. (2019). Relationship between price and volume in the Bitcoin
market. The Journal of Risk Finance.
Kurihara, Y., & Fukushima, A. (2018). How does price of Bitcoin volatility
change?. International Research in Economics and Finance, 2(1), 8.
Sovbetov, Y. (2018). Factors influencing cryptocurrency prices: Evidence from bitcoin,
ethereum, dash, litcoin, and monero. Journal of Economics and Financial Analysis, 2(2),
1-27.
Pernice, I. G. A., & Scott, B. (2021). Cryptocurrency. Internet Policy Review, 10(2).
https://doi.org/10.14763/2021.2.1561
Poyser, O. (2017). Exploring the determinants of Bitcoin's price: an application of Bayesian
Structural Time Series. arXiv preprint arXiv:1706.01437.