Now, before we get started on basic cryptocurrency metrics, you should understand some of the factors affecting digital assets. Here are some factors affecting cryptocurrencies:
● New and Politics
○ News could easily affect the price of cryptocurrency. For example, if a large country, such as China or the U.S. looks to ban initial coin offerings (ICOs), there could be a big drop in various digital assets. News and politics are highly relevant for short-term traders. If there’s news of a hack on a large exchange, bitcoin and altcoins could sell off.
○ On the flip side, if there’s news indicating more countries would adopt cryptocurrencies, the market could see a rise. That said, it’s important for cryptocurrency traders and investors to stay up to date on news. News could be thought of as a “subjective” metric, but you would need to understand the intricacies behind digital assets to properly understand whether the event would cause a spike or drop in prices.
○ Economics plays a key role in the cryptocurrency market. If fiat currencies are unstable, it could lead to increased volatility in the cryptocurrency market. That said, economic factors such as inflation, unemployment figures and devaluation could affect digital coins.
● Community growth rate
○ Community growth rates are pertinent to specific digital assets. The cryptocurrency industry hinges on the number of users adopting digital assets. If there is no growth in public interest, there would be heightened volatility in those assets, and little to no growth in its price. As more users support the digital asset, there would be increased development which should drive prices higher.
● Total and maximum supply
○ Like all markets, supply and demand matters. If there’s excess supply with no demand, chances are the cryptocurrency would trade lower or have little trading activity. We will be going over these metrics later.
○ For a cryptocurrency to continue innovating, there needs to be a voting mechanism or decision making process to propel projects. We will go over this subjective “metric” later in this guide.
Now, you should understand some of the factors that could affect cryptocurrency prices. That said, let’s move onto some basic metrics to analyze before purchasing any digital token.