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Market Structure: Linking Economics and Emotions


You may be interested in learning how feelings factor into Cryptocurrency market. After all, it appears to be a very data-driven industry. It seems that emotions have a significant impact on bitcoin prices.

You see, people aren’t very good at using logic while making investment decisions. We frequently follow our emotions, which might result in some serious errors.

And this is where concepts like FUD (fear, uncertainty, and doubt) and FOMO (fear of missing out) come into play. Investors are more prone to act rashly than they otherwise would when they become emotionally consumed by FOMO or FUD.

So how does this relate to the markets for cryptocurrencies? It follows that prices will change if the bulk of investors make choices based on their feelings.

Which Fundamental Economic Ideas Affect Cryptocurrency Markets?

Price discovery, liquidity, and risk are some essential economic ideas that have an impact on the cryptocurrency markets.

The process by which the market establishes a product’s or service’s price is known as price discovery. The interaction between buyers and sellers in the market is what causes this.

The term “liquidity” describes how quickly an asset may be turned into cash. If there are many of buyers and sellers, and transactions can be completed swiftly and affordably, the market is liquid.

How Does Market Structure Affect Trading in Cryptocurrencies?

Understanding market structure is crucial when trading cryptocurrencies. After all, this could significantly affect how you trade.

People divide markets into two categories: organized marketplaces and disorganized markets. Exchanges that are governed by a centralized body, like the New York Stock Exchange, are considered organized markets. Unorganized markets, like cryptocurrency markets, are more decentralized and do not have a central regulatory body.

Unorganized marketplaces are special for a few reasons:

They are available around-the-clock: There are no established trading hours because there is no centralized authority. Depending on your viewpoint, this may be beneficial or harmful.
They are worldwide: Again, everyone in the globe is free to trade since there is no central authority.
The majority of exchanges don’t ask you for your real name or any other sort of personal data.

What Role Do Emotions Play in the Economics of Crypto Markets?

The marketplaces for cryptocurrencies are distinctive in that they combine two seemingly unrelated concepts: emotions and economics.

The emotional responses of investors to news and events are one thing. On the other hand, you also have the fundamental economic dynamics like supply and demand at play.

These two elements combine to form a volatile mixture that has the ability to send prices skyrocketing or plummeting in a matter of minutes.

Investors must be aware of how these two factors interact and attempt to base their choices on this knowledge.

How Can You Make Better Trades by Taking Advantage of This Market Structure?

You must be aware of how to link emotions and economics in order to benefit from this market structure

You now have a brief overview of how bitcoin marketplaces link economics and emotions. When you are feeling bullish or bearish in the future, always remember to look at the market structure before taking any action. Always invest only what you can afford to lose, as well.

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