What's The Deal With Cryptocurrency Price Fluctuations? Find Out More
Sep 10, 2022 19:45
If you are a crypto enthusiast, you might have noticed the rush of investors toward the crypto market at the beginning of 2022. Millions of investors and even some organizations were gathering around the Bitcoin technology with the hope of better returns on their investment. However, a shockwave in the middle of the year caused a massive market crash.
Unexpected and unpredictable slides are one of the key characteristics of the crypto market and as a newbie, in this field, you must know the most possible reasons behind this. Just after touching the all-time high mark, Bitcoin lost 50% value in the middle of April. However, the market returned to the recovery mood giving investors and traders some confidence to look at the crypto market again.
How The Cryptocurrency Market Works And What Drives It
There are some valid reasons why the value of cryptocurrency fluctuates so frequently and we will talk about them in detail. Various factors are responsible for the crypto’s price fluctuations and we have shortlisted a few to discuss. Let us dig deep and focus on some valid reasons behind crypto’s rise and fall.
1.Cryptos Are Relatively New
It is an undeniable fact that cryptos like Bitcoin have helped many to become millionaires’ overnights, but in terms of asset class; they are new and not as recognizable as traditional currencies. Just because of their newness, most investors do not show interest in putting their money in digital currencies.
2.No Controlling Authority
Lack of governing or controlling authority can lead to crypto’s price fluctuation. Unlike fiat currencies, cryptocurrencies are not managed or controlled by any recognized agency. As of now, cryptocurrencies do not fall under any regulatory framework making them one of the riskiest assets to invest in.
Despite knowing this fact, millions of investors have shown faith in the crypto market. It is probably the unexpected and unbelievable surge of cryptocurrencies like Bitcoin and Ethereum that have enticed investors and organizations to put money on cryptos.
Since cryptos are not recognized and accepted by a majority of the business class, speculations over their future have always been there. So, we can say that lack of managing and controlling entities can be a valid reason behind cryptos’ volatility.
3.Scarcity of Cryptocurrencies
Cryptocurrencies are not infinite in terms of number and quantity. Miners cannot produce or add unlimited new coins to the blockchain network. There are a total of 21 million Bitcoins. We can say that the number of Bitcoin in circulation is pre-determined.
So, when investors or businesses join the crypto market, they face the scarcity of new coins or tokens in circulation. Scarcity often shoots out the price of cryptos like Bitcoin, because scarcity disrupts coin supply and makes investors pay more for the cryptos.
4.Utility of Cryptocurrencies
The utility of coins and tokens can also influence the price fluctuation. The number of users and their purpose for using cryptocurrencies often influence the value of cryptos. The value of cryptocurrencies cannot be increased by holding them for future use. The price will surge if more and more people start using cryptocurrencies to purchase products or services.
Many online stores and restaurant chains have started accepting crypto from their customers. So, the utility can be considered one of the major driving forces behind the fluctuation of cryptocurrencies. To make crypto trading and investment convenient visit https://immediatesedge.de/ and see the difference.
Negative reports around the crypto marker are also responsible for price fluctuations. People who do not believe in the future or potential of the decentralized currency system often circulate negative reports related to the crypto market.
Some news agencies still rate crypto as a volatile and risky asset to invest in. Moving further, a few news outlets declared Bitcoin dead numerous times. Negativity around the crypto market often scares investors.
Despite being known as a risky and volatile asset, the popularity of cryptocurrencies is on the rise. Even though some factors cause price fluctuations, cryptos are still a viable option for many investors. So, as a beginner, you must know your prospective currency first. In-depth knowledge about a particular currency will help you to assess its future movements, which is a crucial part of crypto investment.