In a relatively short time frame, society’s sentiment towards cryptocurrencies seems to be shifting from skeptical to almost celebratory as the versatility of digital currencies has become more apparent, which is reflected in the fact that the price for Bitcoin hit an all-time high recently after the U.S. elections. Furthermore, the recent securitization of Bitcoin and Ethereum has helped legitimize and expand the value proposition of these currencies, turning them into regulated investable assets that individuals and institutions can trade or allocate to within their portfolios. While this rising popularity has gathered the interest of many individuals, it has also made them aware of the price volatility present within the asset class, leading some to wonder about the underlying dynamics of cryptocurrencies and if it is right for them. But others say there is no need to worry – for example, with Plus500’s Crypto offerings, CFD Crypto assets are available to trade with a leverage of 1:2 while Future Crypto assets are available for U.S. traders. 

Factors That Influence Cryptocurrency Prices

Though Bitcoin, Ethereum and other cryptocurrencies are digitally native, supply and demand factors still influence their price. Given that Bitcoin’s underlying protocol/coding limits its supply to 21 million coins, fluctuations in demand can lead to price volatility. Mining new Bitcoin is an energy-intensive process that requires the collaboration of various stakeholders within the blockchain ecosystem. Additionally, investor interest, adoption rates and macroeconomic conditions also affect demand.

A seminal factor influencing Bitcoin’s price is ‘Bitcoin Halving,’ which occurs every four years. The last one occurred on April 14^th, 2024. In simple terms, Bitcoin Halving reduces the rate at which new coins are created. Thus, it is self-induced scarcity written into Bitcoin’s code. The rationale for these quadrennial halving events is to reduce the supply of Bitcoin entering circulation, thus allowing existing coins to keep their value (i.e., avoid inflation).

Similarly, supply and demand dynamics also influence Ethereum’s pricing; however, the cryptocurrency’s underlying protocols also influence its value. In 2021, Ethereum developers enacted Ethereum Improvement Proposal 1559 (EIP1559), which overhauled Ethereum’s transaction fee mechanism in a way that impacts users, miners and holders of Ethereum. One of the results stemming from this change relates to how users would transact on Ethereum. More specifically, the change required that users destroy an algorithmically determined amount of the cryptocurrency, thus limiting its oversupply on the network and the possibility of inflation.

Finally, Bitcoin and Ethereum’s mass adoption and securitization are also influential pricing factors. After rejecting Bitcoin for almost a decade, the U.S. Securities and Exchange Commission approved spot Bitcoin ETFs in January this year, which resulted in several ETF makers launching these solutions. The approval of Ethereum ETFs soon followed. Outside the U.S., some markets, such as Hong Kong, are also launching cryptocurrency ETFs, as there is growing investor demand for these asset types. The securitization of these cryptocurrencies and the usage of these instruments by retail and institutional investors is a growing factor influencing their price.

Overall, it’s important for traders to exercise caution and adapt their strategies as new information and market trends emerge, striking a balance between risk and reward. For example, with Plus500 you can learn the basics of risk management with their trading academy tools. 

How To Trade Cryptocurrencies

The price volatility present in cryptocurrencies, specifically Bitcoin and Ethereum, is indicative of an active market. As with most asset classes, be it stocks, bonds, commodities or other such instruments, there will be periods of upswings and drawdowns. This cyclicality in price creates opportunities for individuals to enter at a reasonable price point and benefit from potential appreciation. Alternatively, they can take a short position if they believe the current valuation is too high and a correction will occur.

Individuals who want to gain exposure to cryptocurrencies can achieve this in multiple ways. As mentioned previously, Bitcoin and Ethereum ETFs are now available to the broad market. These ETFs allow individuals to have turnkey access to the respective cryptocurrencies in a unitized solution. ETFs are possibly the most accessible avenue for individuals looking to invest or trade cryptocurrencies.

Cryptocurrency futures are contracts between two investors who speculate on a cryptocurrency’s future price, giving them exposure to cryptocurrencies without purchasing them. Crypto futures resemble standard futures contracts because they allow traders to speculate on the price trajectory of an underlying asset. For traders or speculators, using cryptocurrency futures enables them to capitalize on the dynamic shifts that occur with these currencies.

Finally, individuals can buy the specific cryptocurrency they desire through a cryptocurrency trading service or exchange. Doing so would provide them with direct ownership of their chosen cryptocurrency.

Why Consider Cryptocurrencies Now?

Against the backdrop of an uncertain macroeconomic and geopolitical landscape, the decentralized nature of Bitcoin, Ethereum and other cryptocurrencies has risen in appeal as investors seek to diversify their portfolios. Simply put, cryptocurrencies broaden the risk and return spectrum available to investors. In other words, for investors willing to take more risk, the cryptocurrency asset class may have the potential to deliver higher total returns in the form of tradable instruments widely available on exchanges.

How To Trade Cryptocurrencies With Plus500

Plus500 PLSQF is a multi-asset fintech group operating trading platforms globally. Established in 2008, the firm has grown its importance as a player in the financial trading sector, being listed on the London Stock Exchange under the ticker symbol PLUS and included in the FTSE 250 Index.

Given the group’s global operations, it is regulated by several entities, including the UK’s Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC), the Israel Securities Authority (ISA) and others in Europe and Asia-Pacific jurisdictions.

Regarding service offerings, Plus500 is expanding and currently offers three platforms: Plus500 Contract For Differences (CFD) with more than 2800 CFD instruments, Plus500 Invest with more than 2700 shares (available in certain countries) and Plus500 Futures, which is a futures platform available in the U.S. only.

As a trading platform, Plus500 is designed to be straightforward and accessible for beginners while offering advanced features for experienced traders. Beginner traders should use the demo account and all the resources in the Trading Academy. Traders can start with as little as $100, and Plus500 Futures (U.S.) offers a deposit bonus of up to $200.

For traders interested in cryptocurrency CFDs, Plus500 can provide up to 1:2 leverage on such transactions. Plus 500 also provides educational resources to upskill one’s trading ability and ongoing 24/7 professional support as needed.

Ready to begin your cryptocurrency trading journey? Click here to check out the Plus500 platform! *82% of retail CFD accounts lose money.

Trading in futures and options carries substantial risk of loss is not suitable for every investor. The valuation of futures and options contracts may fluctuate rapidly and unpredictably, and, as a result, clients may lose more than their original investments.

Featured photo by Traxer on Unsplash.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.