The rise and fall of virtual currencies are driven by six major factors: macroeconomics, policies and regulations, technological innovation, market sentiment, fundamentals and technical analysis; 2. Inflation, interest rates, geopolitical conflicts and economic cycles in the macroeconomic directly affect the flow of funds; 3. Policies and regulation are becoming negative, but brighter is positive; 4. Technological breakthroughs, DeFi, Layer2, cross-chain and Web3 promote value growth; 5. Sentimental fluctuations, community consensus, giant whale trends and supply and demand changes cause sharp short-term price fluctuations; 6. Fundamental analysis requires attention to white papers, teams, technology, scenarios, communities, competition and token models; 7. Technical analysis judges trends and buying and selling signals through K-line patterns, trend lines, support resistance, trading volume, and indicators such as RSI, MACD, and Bollinger bands to help investors make rational decisions.

Virtual currency trading platform:

Ouyi OKX:

Binance Binance:

Huobi:

Gateio Sesame Opening:

In the magnificent waves of digital currency, understanding the mystery of its rise and fall is like mastering the key to open the door to wealth. The virtual currency market has attracted the attention of global investors with its uninterrupted trading and drastic volatility on 24/7. However, for many explorers who are just entering this field, in the face of the jump in the K-line chart, the impact of the news surface and the complexity of technical indicators, how to accurately judge the ups and downs and avoid potential risks has become a huge challenge in front of you. This article will analyze the driving factors behind the rise and fall of virtual currencies in an easy-to-understand manner, and provide an effective analysis framework to help you clear the fog and gain insight into the pulse of the market. We will develop from multiple dimensions such as the macroeconomic environment, policies and regulations, technological innovation, market sentiment, fundamental analysis and technical analysis, and strive to build a comprehensive and in-depth understanding system for readers, helping you make smarter investment decisions in the ever-changing currency circle.

The impact of macroeconomic environment on the rise and fall of virtual currency

Changes in the global macroeconomic environment are one of the deep-seated reasons that affect the rise and fall of virtual currencies. Virtual currencies, especially Bitcoin, are often regarded as a kind of "digital gold". When global economic uncertainty increases, their hedging attributes will be amplified, attracting capital inflows and leading to price increases. On the contrary, when the global economy recovers and traditional investment channels yields rise, some funds may flow out of the virtual currency market, causing prices to fall.

• Inflation: When global inflation intensifies, fiat currency purchasing power declines, investors seek asset preservation, and the scarcity of virtual currencies makes it a potential hedge tool that may push up its prices.
• Interest rate policy: The adjustments to the interest rate policy of central banks in various countries will directly affect the cost of capital and liquidity. Rate hikes usually suppress the attractiveness of risky assets and may put pressure on the price of virtual currencies; rate cuts may stimulate market liquidity and facilitate the rise of virtual currencies.
• Geopolitical conflict: Regional conflicts and international political tensions will increase global uncertainty and prompt investors to turn to safe-haven assets, and virtual currencies may benefit.
• Global economic recession/recovery: During the recession, investment risk appetite declines, and virtual currencies may be under pressure; economic recovery may drive the overall investment atmosphere and be beneficial to virtual currencies.

The impact of policies and regulations on the rise and fall of virtual currencies

Governments and regulatory agencies in various countries have a significant impact on market fluctuations. Strict regulation usually has a negative impact on the market, while openness or clarity in regulation may stimulate market activity and drive price increases.

• Prohibited or restrictive policies: Some countries completely ban virtual currency transactions or ICOs. Such policies will directly cut off the connection between local markets and global markets, resulting in a price plummeting.
• Regulatory framework establishment: When a country or region begins to establish a clear virtual currency regulatory framework, it is often interpreted by the market as a positive signal, helping to attract institutional investors, increase market legitimacy, and thus benefit prices.
• Tax policy: The policy of taxing virtual currency transactions and returns will affect investors' actual returns, thereby indirectly affecting investment enthusiasm and market prices.
• Anti-money laundering (AML) and Know Your Customer (KYC) regulations: Although these regulations increase transaction compliance, they may increase transaction friction and affect market liquidity in the short term.

The impact of technological innovation and development on the rise and fall of virtual currency

Virtual currency itself is the product of technological innovation, so the development and breakthrough of its underlying technologies are important factors driving its value growth. When a certain virtual currency's technology achieves a major breakthrough or its application scenarios are greatly expanded, its value will often increase accordingly.

• Blockchain technology upgrade: Improvements to the underlying blockchain technology, such as improving transaction speed, reducing transaction fees, enhancing security, etc., can attract more users and developers, thereby increasing the value of tokens.
• Smart Contracts and DeFi: The booming development of decentralized finance (DeFi) applications has enabled a large number of assets to be locked in smart contracts, increasing the demand for related tokens and driving prices to rise.
• Layer 2 solution: Layer 2 solutions that emerged to solve the blockchain scalability problem, such as Rollups, can significantly improve transaction efficiency, attract more users, and benefit related tokens.
• Cross-chain technology: A technology that realizes interoperability between different blockchains will help eliminate information silos, promote ecological integration, and enhance overall market liquidity.
• Web3 Ecological Construction: As an important part of the Web3 economy, its application of virtual currency in new fields such as the metaverse and NFT will bring new growth points to it.

The impact of market sentiment and supply and demand relationship on the rise and fall of virtual currency

The virtual currency market is highly driven by emotions, and investors' collective psychological expectations and behaviors can often have a huge impact on prices in the short term. Supply and demand relationships are the core factors that determine prices.

• "Panish sell-off" and "FOMO": When market panic spreads, it may trigger large-scale sell-offs, leading to price plummeting; while "miss-phobia" (FOMO) will drive investors to chase highs and push up prices in the short term.
• Community consensus: Strong community consensus and activity can provide continuous support and development momentum for projects and enhance investor confidence.
• Trends of holding positions for large investors: The buying and selling behavior of the "Giant Whale" account (the address holding a large amount of virtual currency) will have a significant impact on market prices because they have the ability to change the supply and demand balance.
• Listing of new coins: When a well-known exchange launches a new currency, it often brings a wave of popularity, causing the price of new coins to soar in the short term.
• Total supply and circulation: The total supply of tokens and current circulation directly affects its scarcity. Tokens with limited supply and relatively stable circulation are more likely to be pushed up prices.

Fundamental Analysis: How to Assess the Intrinsic Value of Virtual Currencies

Fundamental analysis focuses on the project itself, and judges its long-term investment value by evaluating its technology, team, application scenarios, market prospects and other factors. This is an important part of understanding the potential for rising and falling.

• Project White Paper: Carefully study the white paper to understand the project's vision, technical architecture, the problems solved, and the token economic model.
• Team background: Examine the professional background, industry experience and past achievements of project team members, and judge their execution capabilities.
• Technological innovation: Assess whether the technology used in the project is innovative and leading, and whether it can effectively solve existing problems.
• Application scenarios and market space: Analyze whether the application scenarios of project tokens are widespread, how well they implement, and how big the market space they are facing.
• Community activity and developer ecology: observe the activity of the project community, the number of contributors, and the prosperity of the developer ecology.
• Competitive landscape: Analyze the competitive advantages and disadvantages of the project in the track, as well as the performance of similar competitive products.
• Token economic model: Understand the issuance mechanism, destruction mechanism, distribution method, use and incentive mechanism of tokens, which directly affects the long-term value of tokens.

Technical Analysis: Insight into Market Behavior and Trends

Technical analysis uses market data such as price charts and trading volume to identify price patterns and trends, thereby predicting future price trends. It assumes history will repeat itself and market behavior will reflect all known information.

Interpretation of K-line chart

The K-line chart is the most basic and important tool in technical analysis. It intuitively reflects the opening price, closing price, highest price and lowest price of an asset in a certain period.

• Positive line (green/white): indicates that the closing price is higher than the opening price, which usually means that the buyer has strong strength and the price has risen. The longer the entity, the stronger the momentum of upward momentum.
• Yin line (red/black): indicates that the closing price is lower than the opening price, which usually means that the seller has strong strength and the price has fallen. The longer the entity, the stronger the momentum of falling.
• Hatline: A thin line extending up and down the K-line entity. The upper shadow represents the highest price, and the lower shadow represents the lowest price. The longer the shadow line, the greater the resistance or support in the price area.
• Combination of entity and shadow:
  • Big positive line/big negative line: The entity is very long and the shadow line is very short, indicating that the unilateral upward/downward trend is obvious.
  • Cross star: The opening price is close to the closing price, the entity is small or even none, and the shadow is long, indicating that the bulls and bears are evenly matched and the market may reversal.
  • Hammer line/inverted hammer line: Usually appears at the end of the downward/upward trend, with a small entity, a long lower/upper shadow line, and a reversal signal.

Trend line and support resistance level

The trend line connects the highs or lows of price fluctuations, while the support resistance level is a level that is difficult for the price to break through.

• Upward trend line: Connecting a series of higher lows means the price is in an upward channel and can be used as a buying point or stop loss reference.
• Downtrend line: Connecting a series of lower highs means that the price is in a downward channel and can be used as a selling point or shorting reference.
• Support level: After the price falls to a certain level, the buyer's strength will increase, and it is difficult for the price to continue to fall, forming support. A break below support usually indicates a further decline.
• Resistance level: After the price rises to a certain level, the seller's strength will increase, making it difficult for the price to continue to rise, forming resistance. Breakthrough resistance usually indicates further gains.

Application of common technical indicators

Technical indicators are mathematical formulas calculated based on price and trading volume data. They can help us identify trends, judge overbought and oversold, and predict reversals.

• Moving Average (MA): Smooth price data and identify trend direction.
  • Calculation method: add the closing prices of the past N trading days and divide them by N. Common ones are the 5-day, 10-day, 20-day, 60-day and 200-day moving averages.
  • How to use:
    • When the short-term moving average (such as 5-day and 10-day MA) crosses the long-term moving average (such as 20-day and 60-day MA), a "golden cross" is formed, which is considered a buying signal, indicating that the price may rise.
    • When the short-term moving average crosses the long-term moving average, a "death cross" is formed, which is considered a selling signal, indicating that the price may fall.
    • The price is running above the moving average and the moving average tilts upward, indicating that it is in an upward trend; the price is running below the moving average and the moving average tilts downward, indicating that it is in a downward trend.
    • The moving average diverges after dense entanglement, which usually indicates the formation of a trend.
• Relative Strength Index (RSI): Measures the speed and amplitude of price change and judges overbought and oversold.
  • Calculation method: RSI = 100 - [100 / (1 RS)], where RS is the ratio of the average increase to the average decline. RSI for period 14 is usually calculated.
  • How to use:
    • The RSI value is between 0 and 100. It is generally considered that RSI is above 70 as an overbought area, and below 30 as an oversold area.
    • When RSI enters the overbought area and turns downward, it may indicate a price correction; when RSI enters the oversold area and turns upward, it may indicate a price rebound.
    • RSI divergence: When the price hits a new high, but the RSI fails to hit a new high, forming a "top divergence", it may indicate that the upward momentum is weakened and the price is about to fall. When the price hits a new low, but the RSI fails to hit a new low, forming a "bottom divergence", it may indicate that the downward momentum is weakened and the price is about to rebound.
• MACD (Moving Average Convergence/Diver Index): Identifies trend reversal by calculating the difference between short- and long-term exponential moving averages.
  • Calculation method: MACD line = EMA of Phase 12 - EMA of Phase 26; Signal line (DEA) = EMA of Phase 9 MACD line; MACD bar chart = MACD line - Signal line.
  • How to use:
    • Golden Cross: The MACD line is a signal line (DEA), which is usually considered a buy signal.
    • Dead Cross: The MACD line is a signal line (DEA), which is usually considered a sell signal.
    • MACD bar chart: The bar chart turns from negative to positive, or from positive to negative, indicating changes in kinetic energy. A longer bar chart indicates that kinetic energy is enhanced, while a shorter bar indicates that kinetic energy is weakened.
    • MACD divergence: Similar to RSI, when the price hits a new high, MACD failed to hit a new high, forming a top divergence; when the price hits a new low, MACD failed to hit a new low, forming a bottom divergence, all are important reversal signals.
    • MACD running above the zero axis represents a long market, and running below the zero axis represents a short market.
• Bollinger Bands: consist of one middle rail (usually the 20-day moving average) and two upper and lower rails to measure price volatility.
  • Calculation method: Middle rail = 20-day MA; upper rail = 2 times standard deviation of middle rail; lower rail = middle rail - 2 times standard deviation of middle rail.
  • How to use:
    • Shrinkage and expansion: The contraction of the Bollinger band indicates a decrease in price volatility and may be brewing large price changes; the expansion of the Bollinger band indicates an increase in price volatility and the trend may continue.
    • Price touches the upper and lower tracks: When the price touches the upper track, it may be considered overbought; when the price touches the lower track, it may be considered oversold. However, it is necessary to judge in combination with the trend. In a strong upward trend, the price may run along the upper track.
    • W bottom and M top: The W bottom pattern in the Bollinger band (the price rebounds after the lower track twice) and the M top pattern (the price falls after the upper track twice) are common reversal signals.

Trading volume analysis

Trading volume is the "fuel" of price fluctuations, and its changes can confirm or negate the price trend.

• Prices rise, trading volume increases: It indicates that the buyer has strong strength, the upward trend is healthy, and is expected to continue.
• Prices fall, trading volume increases: It indicates that the seller has strong strength, the downward trend is healthy, and it is expected to continue.
• Prices rise and trading volume shrinks: It indicates that the upward momentum is insufficient and may face a pullback.
• Prices fall, trading volume shrinks: It indicates that the selling pressure weakens and may rebound soon.
• Sky-high price, land volume and land price: The extremely high trading volume is accompanied by a price high, which may be the top signal; the extremely low trading volume is accompanied by a price low, which may be the bottom signal.

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