How Global Events Affect Crypto Prices

Table of Contents

• Basics of Cryptocurrency, Crypto Trading, and Crypto Prices
• What Determines the Price of Crypto?
• How Global Events Impact Crypto Prices
• Key Global Events That Affected Crypto Prices in 2024
• How News Affects the Crypto Market
• What Makes Cryptocurrency Valuable?
• The Role of Market Sentiment in Cryptocurrency Prices
• How to Stay Updated with Crypto News
• To Recap
• FAQs

Cryptocurrencies have evolved into a major asset class that investors worldwide are paying attention to and making huge investment moves in.

First, it began with Bitcoin and gradually grew to thousands of altcoins. However, one characteristic of the cryptocurrency market is its volatility. 

There are many factors that affect crypto prices, but time and again, it has been proven that global events play a key role in influencing these prices, often resulting in dramatic rises and falls. 

As a crypto trader or someone looking to invest in crypto, it is essential to understand how these events impact crypto prices.

This blog post will explain the relationship between global events and the cryptocurrency market. We will explore how news, economic changes, regulations, and other factors affect crypto prices and what that means for investors.

Basics of Cryptocurrency, Crypto Trading, and Crypto Prices

Cryptocurrency, or "crypto," is a digital or virtual currency that relies on cryptography to secure transactions. Popular examples include Bitcoin, Ethereum, and Ripple. 

Unlike traditional money, cryptocurrencies operate on decentralised networks, typically using blockchain technology. This decentralisation is crucial to crypto's appeal, as it removes the need for central authorities such as banks or governments. However, it also means that crypto prices can be highly volatile.

The price of cryptocurrency is primarily determined by supply and demand. For instance, Bitcoin—the first and most popular cryptocurrency—has a fixed supply of 21 million coins, making its scarcity a major factor in its price. 

As of 2024, the price of Bitcoin has fluctuated between $48,000 and $73,000, showing how global events, investor sentiment, and regulatory decisions can cause significant price shifts. In fact, according to Blockworks, the crypto market is valued at over $1.25 trillion, with Bitcoin holding a considerable share.

Crypto trading involves buying and selling digital assets on cryptocurrency exchanges like Obiex. Traders often speculate on crypto prices, taking advantage of price swings to make a profit. 

What Determines the Price of Crypto?

1. Supply and Demand: 

When more people are interested in buying a particular cryptocurrency like Bitcoin, but the supply remains limited, the price will rise. For example, Bitcoin's supply is capped at 21 million coins, and as more people invest in it, the scarcity drives its price higher. In December 2020, Bitcoin's price surged by around 416% as demand increased amidst the pandemic's economic uncertainty.

2. Market Sentiment: 

If there is positive crypto news—such as a major company adopting cryptocurrency or a government signalling its support—investors may rush to buy, pushing the price up. For example, when Tesla announced in February 2021 that it had bought $1.5 billion in Bitcoin, the price of Bitcoin jumped nearly 20% in a single day.

3. Regulation: 

Countries that impose strict regulations on cryptocurrency exchanges or outright bans can cause significant drops in crypto prices. For instance, in May 2021, when China intensified its crackdown on cryptocurrency mining and transactions, the price of Bitcoin plummeted from around $58,000 to $28,890 in just a few weeks. 

4. Technological Developments: 

When a cryptocurrency upgrades its technology or improves its security, it can attract more investors, leading to price increases. In contrast, negative news like security breaches or technological failures can cause the prices to drop.

5. Global Events: 

Events such as political instability, pandemics, or even natural disasters can influence the broader cryptocurrency market. During the COVID-19 pandemic, cryptocurrencies gained popularity as investors sought alternative investments due to economic instability, causing a massive increase in the crypto market cap. 

How Global Events Impact Crypto Prices

1. Political Unrest:

When governments face turmoil, citizens often seek alternative currencies to protect their wealth. For instance, during periods of high inflation or currency collapse, many individuals turn to Bitcoin for its decentralised nature, which provides a level of security not offered by traditional fiat currencies. 

In 2024, geopolitical tensions, including conflicts and government sanctions, are driving Bitcoin prices as investors look for ways to safeguard their assets. Recent reports show that during political instability in countries like Venezuela and Argentina, Bitcoin adoption surged, leading to significant price increases. 

2. Economic Uncertainty and Investor Sentiment:

Economic downturns, such as recessions or financial crises, can dramatically shift investor behaviour. Take the COVID-19 pandemic as an example. During the lockdowns in 2020, Bitcoin's price surged by over 300% as investors fled to cryptocurrencies as a hedge against potential inflation and economic instability. 

Such trends indicate that Bitcoin and crypto, in general, often act as a safe haven during uncertain economic times, driving their prices higher when traditional markets decline. 

3. Technology Advances:

The ongoing developments in blockchain technology, including smart contracts and decentralised finance (DeFi), enhance Bitcoin's utility, which can lead to crypto price increases. 

For instance, as cryptocurrencies become more integrated with new technologies that improve security and scalability, their adoption among businesses and individuals grows. Increased demand from users and companies translates into higher prices. 

Data from the cryptocurrency market suggests that every major technological breakthrough has historically been followed by a price rally, with Bitcoin reaching new all-time highs following significant upgrades and innovations.

4. The Role of Institutional Adoption:

When major companies or financial institutions express interest in Bitcoin, it tends to ripple throughout the entire cryptocurrency market. For example, Bitcoin prices increased after Tesla announced that it would accept Bitcoin as payment. Within days, the price of Bitcoin skyrocketed by nearly 20%. 

In 2024, growing institutional interest from major banks and retail giants further cryptocurrencies and crypto investments, attracting a new class of investors. This trend could lead to a more stable price as Bitcoin becomes more integrated with traditional financial systems. 

According to research, institutions holding Bitcoin can significantly impact the cryptocurrency market cap, increasing investor confidence and driving prices upward.

5. Regulation:

Favourable regulations can enhance confidence in the cryptocurrency market, while strict regulations might suppress it. 

Key Global Events That Affected Crypto Prices in 2024

1. Global Economic Slowdown:

One of the most impactful events on crypto prices in 2024 was the continued global economic slowdown. Inflation rates in the US, Europe, and parts of Asia remained high, leading to increased uncertainty in traditional financial markets. 

Many investors sought alternatives to fiat currencies, turning to Bitcoin and other cryptocurrencies. As a result, the price of Bitcoin rose nearly 15% in the first quarter of the year, as people viewed crypto as a hedge against inflation.

However, when central banks raised interest rates to combat inflation, crypto prices fell as investors retreated to safer assets like bonds.

2. Regulatory Crackdowns in Key Markets:

Another major factor was the regulatory crackdown on cryptocurrencies in several countries, particularly the US and China. In the US, stricter regulations on cryptocurrency exchanges, especially regarding anti-money laundering (AML) compliance, caused a decline in the prices of crypto assets. 

For example, in March 2024, Bitcoin’s price fell by 12% within two days after the SEC issued heavy fines to several leading cryptocurrency exchanges. 

In China, a further crackdown on mining activities also sent shockwaves through the market, reducing the overall hash rate, which briefly impacted Bitcoin's price discovery.

3. Geopolitical Tensions and Conflict:

With escalating conflicts in the Middle East and Eastern Europe, investors worldwide began moving funds into cryptocurrencies as a store of value. The price of Bitcoin, for instance, increased by 10% in July 2024, as global investors sought safer, decentralised assets in response to rising geopolitical risks. 

4. Institutional Investment and Adoption:

In 2024, more institutional investors, such as pension funds and hedge funds, added crypto to their portfolios. Major corporations such as Tesla and Apple made headlines with announcements of further investments in Bitcoin, driving its price up by 8% in October. 

According to Bloomberg, crypto's overall market cap increased by $200 billion in the third quarter of 2024, primarily fueled by institutional money flowing into the market.

How News Affects the Crypto Market

The impact of news on crypto prices is significant and can create substantial shifts in the cryptocurrency market. Publicly available information shapes how investors feel about cryptocurrencies, and this sentiment plays a crucial role in their trading decisions. 

Research shows that daily headlines can be classified as either positive or negative, with positive news typically boosting investor confidence and leading to higher returns. 

For example, during 2020, Bitcoin's price surged over 300% from around $7,200 in January to nearly $29,000 in December, primarily influenced by positive news surrounding institutional adoption and increased acceptance of cryptocurrencies. 

On the other hand, negative news tends to create uncertainty, which can cause crypto prices to drop. For instance, the China crackdown on cryptocurrency exchanges in 2021 caused Bitcoin's price to fall from approximately $63,000 to around $30,000 within a few weeks, highlighting the profound effect of bad news. 

This phenomenon is known as the “negativity effect,” and it is particularly evident in Bitcoin, where negative news has a stronger impact on price movements than positive news. 

Furthermore, positive news increases market liquidity, as uninformed traders often jump in, driven by fear of missing out (FOMO). In contrast, negative news decreases liquidity by making both informed and uninformed traders hesitant to trade. 

What Makes Cryptocurrency Valuable?

1. Utility:

The utility of a cryptocurrency refers to how it can be used beyond simple transactions. For instance, Ethereum powers smart contracts that enable automated agreements without intermediaries. This versatility enhances its value, reflecting its significant usage within the cryptocurrency market. 

2. Scarcity:

Scarcity also plays a vital role in determining the value of cryptocurrencies. Bitcoin has a fixed supply limit of 21 million coins. As of now, approximately 19 million bitcoins have already been mined. 

This cap creates scarcity, which can drive up the price as demand increases. In April 2024, the price of Bitcoin surged to $70,000, partly due to its limited availability and increasing institutional adoption.

3. Demand:

When more people want to buy a cryptocurrency than sell it, its price tends to rise. For example, following positive crypto news about regulatory acceptance, the market often sees a spike in demand. 

4. Security:

Unlike traditional currencies, which can be subject to government interference, cryptocurrencies are decentralised. This decentralisation makes them less vulnerable to manipulation or fraud. 

5. Market Sentiment:

Market sentiment, influenced by news and events, also impacts crypto prices. Positive developments, such as partnerships or regulatory advancements, can lead to bullish trends. 

In contrast, negative news, like hacks or regulatory crackdowns, often results in price declines. 

The Role of Market Sentiment in Cryptocurrency Prices

Market sentiment refers to the overall attitude or feeling that investors have toward the market, which influences its prices. 

When people are optimistic and confident about the future of cryptocurrencies, we often see a rise in crypto prices. 

For instance, positive developments in regulations or adoption by major companies can spark enthusiasm, leading to increased buying activity. 

On the other hand, negative sentiment, often fueled by bad news, scandals, or regulatory crackdowns, can cause panic selling, which results in drops in crypto prices. 

Social media platforms like Twitter and Reddit also play a role in shaping market sentiment; influential tweets can trigger immediate price changes. For instance, a single tweet from a prominent figure can lead to dramatic fluctuations in crypto prices within hours. 

Therefore, understanding market sentiment is essential for investors, as it helps them anticipate price changes and make informed decisions in highly volatile situations. 

How to Stay Updated with Crypto News

One effective way to stay informed is to follow dedicated cryptocurrency news websites such as CoinDesk and CoinTelegraph. These websites provide real-time updates on market trends, regulatory changes, and major events that can affect the price of Bitcoin and other cryptocurrencies. 

Another helpful strategy is to track cryptocurrency exchanges like Obiex, where you can observe price movements and trading volumes directly. By paying attention to these metrics, you can identify trends and anticipate how global events may influence prices. 

Social media platforms like Twitter and Reddit are also valuable resources for gaining insights from key influencers and thought leaders in the crypto space. Many of them share opinions and analyses that can shape market sentiment and provide a deeper understanding of what determines the price of crypto. 

To Recap

• Cryptocurrencies are digital currencies secured by cryptography. They operate on decentralised networks, making them volatile.
• Supply and demand, market sentiment, regulations, technological developments, and global events influence prices.
• Political instability and economic uncertainty can lead investors to seek cryptocurrencies as safer options.
• Economic slowdowns, regulatory crackdowns, geopolitical tensions, and increased institutional investment have significantly impacted crypto prices over the years.
• Positive news tends to raise prices, while negative news often leads to declines, highlighting the importance of staying informed.
• Utility, scarcity, demand, security, and market sentiment all contribute to the value of cryptocurrencies.
• Investors’ feelings towards the market can lead to price rises or falls, often driven by social media and news.

FAQs

Q1. What determines the price of crypto? 

Crypto prices are determined by supply and demand, market sentiment, regulation, and global events.

Q2. What is price discovery in crypto?

Price discovery in crypto refers to the process through which the market determines the price of a cryptocurrency based on supply and demand.

Q3. Which crypto has a high price?  

Bitcoin currently holds the highest price among cryptocurrencies, often reaching tens of thousands of dollars per coin.

Q4. What makes crypto prices go up?  

Positive news, increased demand, and technological developments often cause crypto prices to rise.

Q5. What factors could significantly impact the price of cryptocurrency?  

Global events such as economic crises, government regulations, and technological innovations can significantly impact crypto prices.

Q6. How does news affect the crypto market?  

News can create rapid price movements in the crypto market, whether positive (leading to price increases) or negative (leading to price drops).

Q7. What makes a cryptocurrency valuable?  

A cryptocurrency's value comes from its utility, scarcity, and community trust.

Q8. What will crypto be worth in 5 years?  

It's hard to predict, but some analysts believe Bitcoin and other cryptocurrencies could increase in value as adoption grows.

Q9. What influences crypto prices?  

Crypto prices are influenced by supply and demand, market sentiment, news, and regulatory developments.

Q10. What is one of the biggest influences on the price of cryptocurrency?  

One of the biggest influences on crypto prices is government regulation and policy changes.

Disclaimer: This article was written to provide guidance and understanding. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.