How Cryptocurrencies Maintain Their Price, Explained

How Cryptocurrencies Maintain Their Price, Explained
1.
Firstly, what do you mean by “maintain their price?”

While being traded on the markets, cryptocurrencies experience various forces which push their price up or down. There is a range of measures which can be implemented in order to keep the price stable, or rising.

The price of a cryptocurrency is a reflection of its value. The more useful it is, the higher the demand for it will be. That demand is what drives the price of any one coin up.

However, internal factors are not the only ones affecting the price. Speculative pressure, exerted by traders who buy cryptocurrencies only to sell them later, is an external factor which may affect the price of a coin regardless of its actual usefulness.

Oftentimes, this pressure is negative - when the traders start selling, the price goes down. In such cases, the developers behind a coin may resort to an arsenal of their own tricks to push the price upwards and counter the downward dynamic. Let’s take a look at some of those methods.

2.
Media support

Good press coverage, be it news, interviews or partnership announcements, makes any coin seem more successful, which has a positive effect on its price.

A lot of good things may happen to a cryptocurrency: the developers can add new features, it can become tradable on a new exchange, its code can be reviewed by a software analyst, a bounty program can be started and so on.

All these things indicate that the project is still alive and growing, which is always good for the price. However, the market has to learn about these things somehow before they take an effect. This is where the media comes in.

By partnering with news outlets and ensuring a steady stream of breaking news about their cryptocurrency, the developers can significantly increase the upward dynamic of the price.

3.
Public support

Having a large and loyal fan base can be a real treasure for any cryptocurrency.

It is natural for people to be more trustful of someone who is already trusted by many. As such, many cryptocurrencies take their time to build a core audience of genuine fans.

These people may contribute new ideas for the development of the coin, provide valuable feedback and, most importantly, convince newcomers of the fact that their favorite cryptocurrency is indeed trustworthy.

Building a strong base of followers is paramount before launching an ICO campaign. It provides a sort of snowball effect - the more people invest in a coin, the more likely outsiders are to contribute their money, and all of this demand drives the price up.

Considering this, it becomes clear why having a critical mass of followers before the launch of an ICO is important. It’s kinda like lemmings to the sea, but with a better ending.

4.
Trading simulation

In order for a cryptocurrency to grow, it needs sufficient liquidity. If there is not enough organic activity on the markets, it can be created artificially by employing trading bots.

A cryptocurrency cannot become popular if people who are interested in using it can’t buy it in sufficient quantities. And that can pose a real problem when a coin is young and not many people trade it on a regular basis.

In such cases, it is possible to use bots which will automatically conduct trades on the market, according to pre-set instructions. By constantly moving the coins around, these artificial bulls and bears increase liquidity, which in turn allows the capitalization to grow, little by little.

Obviously, this is an artificial measure which can’t, on its own, create real demand for the currency. However, in some cases, bots can be a useful tool for a growing cryptocurrency, just to give it an extra boost of liquidity.

5.
Guerilla marketing

Reaching out to people on social media provides for an inexpensive yet efficient way of generating hype for your coin.

The many groups dedicated to cryptocurrencies that exist on social media represent very tightly-knit communities, and communicating with them might be one of the fastest ways of spreading news about a coin.

One of the most effective tactics here is spreading rumors about a cryptocurrency’s development process or future price movement - anything potentially big spreads like wildfire on social media. Sometimes, developers make use of this by leaking secrets themselves.

6.
Pumping

Pumping is an often frowned-upon practice of market manipulation where the people behind a coin create artificial shortages of it and then imitate high demand.

Generally, the largest share of cryptocurrency trading takes place in the order books of various online exchanges. Individual traders list their buy and sell orders there, at prices acceptable to them.

Sometimes, this natural process may be disrupted by people looking to “pump” a coin. Usually, it starts with buying out all orders which are listed at or near the current average price. This process is done covertly, and the price is monitored the entire time so as to not let it rise uncontrollably.

After the order book has been emptied like that several times, it results in an artificial shortage of coins. After a short delay, the market reacts and the price goes up due to the insufficient supply.

This practice is generally looked down upon in the cryptocurrency community as it is mostly used as part of the “pump and dump” schemes where the coins are sold immediately after the price surge, making it crash again.

However, it is not all doom and gloom - cryptocurrencies exist in open markets, so absolutely anyone can take advantage of the movement of the price. One just has to know where to look for signs of an upcoming pump, and there are already some useful tools out there which can help you with that.

One such example is CryptoPing, a Telegram bot which monitors all altcoin markets in real time and alerts users whenever it detects an upcoming pump. In order to make meaningful decisions on the crypto markets, one needs to process vast amounts of data, so the help of such software instruments may be invaluable to prudent traders.