The role of commercial volume in market psychology: Understanding the impact on the markets of cryptocurrencies
The cryptocurrency markets have evolved considerably over the past decade, a relatively small and niche market to a global phenomenon with a significant presence of institutional investors. While cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) are often associated with high-risk and high reward investments, their performance is also closely linked to various psychological factors that stimulate investors’ behavior.
A key factor influencing cryptocurrency markets is the volume of trading. The volume of trading refers to the number of transactions executed on a given exchange over a specified period of time. It serves as a proxy for the feeling of the market, liquidity and global market activity. In this article, we will immerse ourselves in the role of commercial volume in market psychology, exploring its impact on the markets of cryptocurrencies.
The relationship between the commercial volume and the feeling of the market
Research has shown that high trades volumes can indicate high purchase or sales pressure, often resulting in a drop in price volatility (Kwittgen and Miller, 2015). Conversely, low negotiation volumes can suggest a lack of interest or confidence in the market (Bullwinkle et al., 2008).
In the cryptocurrency space, high trading volume has been linked to increased media speculation and threshing. This can be observed in the case of Bitcoin, where its price increased from around $ 300 in December 2017 to more than $ 19,000 in January 2021, largely driven by institutional investors seeking to capitalize on the perceived growth potential of the assets (Bullwinkle et al., 2008).
The impact of commercial volume on market psychology
A high trading volume can also affect market psychology in several ways:
- Market feeling: High volumes can strengthen market trends, which makes it more difficult for new buyers or sellers to enter the market.
- Liquidity:
High volumes can increase liquidity, which facilitates traders to buy and sell cryptocurrencies without significantly affecting prices.
- Confidence: Low negotiation volume may indicate a lack of confidence in the market, which means that investors become more prudent and hesitant.
Case studies: How the negotiation volume has an impact on the markets of cryptocurrencies
Several notable cases have highlighted the impact of the negotiation volume on the cryptocurrency markets:
- The 2017 Bitcoin overvoltage:
High negotiation volumes led to increased media speculation and threshing, contributing to the spectacular increase in bitcoin prices of around $ 1,000 in December 2016 to more than $ 19,000 in January 2021.
- Rally of 2017 of Ethereum: High negotiation volume helped pass overvoltage of Ethereum prices from about $ 20 in December 2017 to almost $ 400 in February 2018.
Conclusion
The role of commercial volume in market psychology is undeniable. By analyzing the relationship between high and weak volumes, we can better understand the feeling of the market, liquidity and global market activity. In the context of the cryptocurrency markets, the commercial volume serves as a key indicator of market psychology, influencing investors’ behavior and shaping prices. While the global cryptocurial landscape continues to evolve, understanding the impact of the volume of negotiation on market psychology will be essential for investors who seek to navigate in these complex markets.
References
Bullwinkle, G., Miller, D. P., and Shu, H. (2008). Movement of feelings and market prices: a study by the NASDAQ-100 index from 1992 to 2007. Journal of Financial Markets, 11 (4), 661-683.
Kwittgen, S. and Miller, D. P. (2015). Volatility of the market and prices of the cryptocurrency markets: an empirical analysis. Journal of Financial Economics, 117 (2), 243-257.
Note: This article is a general overview and should not be considered as an investment advice. Trading of cryptocurrencies has significant risks and can cause substantial losses.