Here’s the key difference with cryptocurrency: Crypto has no earnings nor indeed anything that backs its value. Stocks are backed by the company that issued them, and if the company grows its earnings, the stock will go up over time. In contrast, crypto prices rely exclusively on traders deciding to pay more for the crypto. So anyone who offers a crypto price projection is just pulling a number out of a hat, and that figure is almost always higher than today’s price.

What drives cryptocurrency prices

Cryptocurrency prices are driven only by sentiment, with the notable exception of stablecoins , which are actually backed by hard assets held by a fiduciary. Because of this setup, what crypto traders need more than anything is willing crypto buyers. The way to get them is by spreading optimism about crypto’s prospects and how it’s going to be worth much more in the future.

Crypto prices are fueled exclusively by sentiment, and various crypto traders are trying to juice sentiment by naming ever-higher crypto price targets. Of course, Bitcoin has demonstrated a strong history of “up and to the right” price performance for well over a decade now. And yes, of course, plenty of analysts are making good-faith estimates of what Bitcoin and other cryptos will fetch. But it all plays into the euphoria needed to boost crypto prices higher and higher.

While crypto proponents say that Bitcoin’s total fixed issuance of 21 million coins gives the asset value, that’s misleading. There are many things that are much rarer but that don’t have value at all (the glasses in your cupboard, for instance). What makes crypto (or anything) valuable is the demand for it, and that’s why maintaining an extremely optimistic outlook is important. Yes, Bitcoin’s fixed issuance is important, but only in the context of increasing the level of demand.

Bottom line

Traders need to understand where the value of their investment comes from, and with crypto, the value driver is optimism. Because crypto is not backed by anything solid, its price relies entirely on sentiment, which is why prices move so violently when news changes traders’ perceptions.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.