What factors make cryptocurrency trading markets go up or down?

If you’ve heard anything about cryptocurrency trading markets, you’ve definitely heard that they are volatile. That’s pretty much the first thing anyone says about crypto — it’s unpredictable and wild. But there are definitely clear bull market and bear market cycles, even on the rollercoaster called cryptocurrency trading. The question that most people can’t answer, however, is what makes cryptocurrency trading markets go up and own?

When you’re looking at the crypto market, many people just look at Bitcoin. And it’s true that Bitcoin is a crypto unto itself. It certainly leads the rest of the market in dominance. But what everyone calls the “alts market” also has its patterns. In this article, let’s discuss how these markets move and what causes those moves.

Terms to know

Just so we’re speaking the same language, here are a few key terms you’ll want to know before we dive in.

Market maker

Market makers provide liquidity to markets and facilitate trades, making profits from the arbitrage.

FUD

Fear, uncertainty, and doubt—referring to public sentiment in the market.

Correlation

Correlation measures the linear relationship between two securities, determining if they move together, opposite, or are unrelated.

Stop-loss

A stop-loss order is an order to buy or sell when the price hits a certain point. Traders use it to reduce losses by triggering an automated trade.

What does the market do?

Before we understand why cryptocurrency trading markets move, we should probably understand what they do when they move. They are certainly very volatile in the short-term, but if you look at crypto market history, it’s pretty much a constant up-and-to-the-right action.

NGU technology

Some people call what the crypto market does a result of NGU technology or, in layman’s terms: number-go-up technology. It’s the “BTC to the moon” or “WAGMI” (we’re all gonna make it) sentiment that makes this optimistic lingo a common description of the BTC and alts markets. Of course, there have been some big, 80% corrections in the past, but overall the optimism has been justified in the long run.

Four-year bull market and bear market cycle

As we’ll talk about later, cryptocurrency trading markets do seem to have some correlation to the stock market. But in general, the alts follow Bitcoin and Bitcoin has a four-year cycle based roughly on the halving. It starts with a flat market in the first year of the cycle. Year two kicks off the bull market and prices start to go up. Year three is when everyone gets excited and starts to FOMO in because it’s typically a parabolic bull market with a blow-off top. In the last year of the cycle, the bear market sets in and can crash down catastrophically — obviously no one likes those years.

How does it go up and down?

Within the larger pattern of the four-year cycle of cryptocurrency trading markets, there can be big ups and downs. So how do these moves happen? There are many ways.

Supply and demand

The most basic explanation for how markets move is supply and demand. With Bitcoin, for example, because the supply is increasing at a fixed rate and it has a cap that will be reached roughly in 2140, the higher demand gets, the higher the price goes. While other cryptocurrencies like Ethereum don’t have a fixed supply, they sometimes have burning mechanisms that take coins out of circulation, creating deflationary pressure.

Demand is driven by many things, including influencers like Elon Musk and Mark Cuban who create publicity, awareness, and interest.

Alts can move with BTC

When it comes to the altcoin markets, bull markets often follow on the heels of BTC bull runs. There’s certainly not a perfect correlation across all altcoins, but because Bitcoin typically has such high dominance (52% at publication) in the market, when it pumps, altcoins often pump right behind as excitement increases and everyone apes into their favorite coins.

It’s also worth noting that most altcoins are traded into from BTC, whereas BTC is often traded into from fiat. There are times, however, when traders move into BTC by dumping alts and vice versa. When this happens, there can be some negative correlations.

BTC moves with stocks

Because the way markets move in general is influenced by public sentiment, for now, cryptocurrency trading markets have often moved with the stock market. Even though it’s not tied in any meaningful way to the stock market and the promise of Bitcoin is an escape from traditional financial markets, FUD is FUD. When big, sentiment-moving events happen, people tend to react similarly in both stock and crypto markets. This may not be the case in the future, but it’s generally playing out in reality for now.

Market maker manipulation

Markets can also go up and down because of market maker manipulation. This is when whales try to induce retail investors to move. Big sell-offs from market influencers can get people scared, causing a cascade of sell orders which then trigger stop-loss orders, deepening the dip. Knowing how to trade against sentiment is one of the hardest trading skills to master for most people.

Why does the market move when it does?

Now that we know how cryptocurrency trading markets move, we can start to get an idea of why they move. There are many reasons and influencing factors that make it difficult to pinpoint any one cause of a bull or bear run.

Influencers and whales

As we mentioned above, whales and influencers can create a ripple effect in the retail trader sentiment. When Elon tweets about Doge coin or whales dump BTC, they can easily shift narratives and move retail investors to buy or sell, scooping up the dip or selling the top.

Regulations and governments

When governments announce monetary policy updates or regulators create new rules, this can also cause the market to move. For example, when the Fed announced its plan for interest rate hikes in 2022, the market dropped in response as people looked for other ways to protect their wealth.

World events

News headlines and world events can also cause the market to move as people react to what is happening or what they think might happen in the future. There has been a strong cryptocurrency narrative created by Russia’s conflict over Ukraine, causing interest to grow as people see how Bitcoin can be used to circumvent governments.

FUD and FOMO

There are many influencers pushing markets up or down and everyone has their theories about the “why” when a bull market or bear market hits. But one thing that can be seen very clearly is that FUD can bring about a bear market and FOMO can bring about a bull market.

The future of cryptocurrency trading markets

So how will the cryptocurrency trading markets move in the future, and what are the various influencers? Analysts can spend all day trying to predict when a bull market will move into a bear market or when a top will be. Most people are wrong, however. Some project purely on quantitative analysis and hard numbers, and others project based on qualitative measures like narratives and sentiment. It can be hard to tell what factors to take into account, but one thing is certain — crypto is becoming part of the global financial market and it’s not going away.