Read the News, Understand the Cues

In the fast-paced & digitalized world of today, information flows rapidly and is easily accessible by the masses. Media channels of all forms have hit their peaks of popularity and continue to grow, and the media can have a great influence on the wellbeing of products and services.

This is ever-so significant for the crypto market; a trillion-dollar industry which operates round-the-clock. Cryptocurrency market participants, which include traders, investors and speculators, can easily stay updated on the hottest trends and latest market revelations.

The intrinsic value of cryptocurrencies is influenced by fundamental drivers including the activity surrounding the cryptocurrencies themselves, the environment of the industry which the crypto calls home, prevalent macroeconomic conditions and future outlooks.

This characterizes the crypto space in a similar manner to that of traditional financial markets; what would affect the price of a company stock, for example, could also influence the behavior of a cryptocurrency.

What’s different about the crypto world is that sentiment is greatly influenced by news, as they are not regulated by a certain authority. Hence, the crypto market is heavily driven by the popularity and impression of news, and given that crypto prices are people-driven, which can act on emotions, news can have a large impact on the price behavior of cryptocurrencies.

How does news affect crypto prices?

Positive news about a cryptocurrency can boost its price, and vice-versa. If news about Ethereum transaction fees decreased to record lows, for example, has circulated the web, it is expected that the price of ETH would increase as traders can see this as an opportunity to purchase ETH tokens at a price which may increase significantly in the future.

Bad news, however, can also be quite impactful. The calamitous fall of the Terra Luna ecosystem, the lawsuits against reputable crypto exchanges – have all weighed down on the prospects of the respective assets native to such networks, and the list goes on.

Important news releases provide cryptocurrency traders and investors with the opportunity to capitalize on market volatility and price fluctuations. News spreads rapidly, especially if they are being broadcasted by reputable agencies.

Tone, significance and coverage

The degree to which a news release can impact a cryptocurrency and/or the crypto industry is dependent on several factors, notably tone, significance and coverage.

Tone refers to the way in which an article speaks to its readers, and this is a whole world of its own. A news article can have a conversational feel, or can be more on the factual side. The bias, style and feeling of the information presented has a significant impact on the reader.

For example, a bubbly article about Dogecoin price decreasing, yet describing the cryptocurrency as a cute one could give the readers an idea that the intrinsic characteristic of the coin being “cute” would still be prevalent despite the price decrease; hence, retaining some of its value in the eyes of the readers.

On the other hand, describing the CEO of a certain crypto exchange as “manipulative”, for example, can greatly influence how readers would view this person and the entity which he/she represents. The power of tone provides the omnipresent feel and hence the emotions which result after reading the article.

Significance simply means the importance of a certain revelation, and how much it can impact something. News which has low significance barely put a dent on the price of a cryptocurrency, while highly-significant news tends to drive the prices of cryptocurrencies in a heavier manner.

If news circulated the world that Bitcoin price increased by 0.5% due to the recent moves of a crypto whale, it may not spark any real impact within traders. Central bank decisions to cut down interest rates for an entire nation, for example, would be a more significant occurrence as it not only affects the whole financial system but also that of cryptocurrencies.

Coverage refers to the spread of a certain article or new information. The larger the spread, the more people will read it. As a news article generates more reads, views, comments and shares, it is expected that the mentioned topic will gain more attraction. In the scope of cryptocurrencies, this would mean higher trading activity.

How to protect crypto investments?

High-coverage news releases, tweets and conversations have a large impact on the sentiment-driven cryptocurrency playfield. It is important for crypto traders and investors to stay up-to-date with the latest market revelations, and to learn more about the risks associated with crypto trading.

One way in which traders and investors can protect their trades is via mechanisms which limit the potential loss which can be incurred. This can be done via the stop-loss mechanism which act as barriers which cannot be breached, limiting the use of the leverage tool and indulging in hedging.

Learn more about trading safely by exploring our guide on building a balanced crypto portfolio, and stay up-to-date with the latest market revelations by exploring our news portal.