Cryptocurrency Fluctuations – Why Do They Happen?
Since it was first introduced to the world in 2009, it’s safe to say that the cryptocurrency market has gone up and down the ladder. However, in recent years, digital currency has gained traction and has risen in popularity as a result. The more popular currencies like Bitcoin, XRP, and Ethereum, have grown exponentially just over the past few years.
Of course, we know how volatile the cryptocurrency market is and how much it can fluctuate over time. Investors and day traders in digital currency can be wealthy one day and broke the next, however, overall the market is a little more stable than it was just a few years ago.
The team at totalcrypto.io highlight that it is essential to understand what factors have an effect on the market, and how these factors impact prices.
Supply and Demand
Economics 101 teaches us about supply and demand, which is one of the ways value is determined for cryptocurrencies. Public opinion, which is swayed by certain factors, causes demand to fluctuate drastically. However, most cryptocurrencies have a limited supply, with only a given number of units available. As a result, we see huge fluctuations in price.
This has never been as evident as it has been with the price of Bitcoin the past few years. In July of 2017, Bitcoin could be purchased for less than $2,000. By December, the same digital currency had reached almost $20,000. Now, a year later, Bitcoin hovers between $3,500 and $4,500. Bitcoin trading volume certainly isn’t straight forward to predict.
The fluctuations aren’t just limited to a wide time range though. There are certain days when Bitcoin may see a change in over $300. A number unheard of in the public market.
Media
Media is another way cryptocurrency prices are affected. Positive news can drive digital currency prices up while negative press can have the opposite impact. For instance, in September 2017, China banned ICO authorities. The resulting panic caused a collapse in Bitcoin. It dropped from $5,000 to $3,000 in no time.
You can categorize media into two areas: systemic and political. An example of political media influencing the price of cryptocurrency was when the South Korean and Chinese exchanges led to a collapse of altcoins and Bitcoin. At that time, NEO rose when there was positive news reported from China.
Systemic sources share innovative changes in the market These can take the form of platform scaling, creative solutions, or any variety of methods. So be sure that you’re following the latest information and news in the media, but as you’re doing so, remember how said news can manipulate the price of cryptocurrencies.
Progress in Technology
As the demand for cryptocurrencies continues to grow, it’s important to pay attention to the latest technological advances being made in the space. There is a true need for anonymity, security, and independence, along with cheap and fast transactions. This is the foundation on which the digital market was laid.
With advances in technology, life is made easier for both consumers and businesses alike. It creates transparency and efficiency in areas it didn’t previously exist. Of course, it’s nearly impossible to imagine what will come next in the way of technology, which is just another reason cryptocurrencies are so volatile.
Regulations
Another factor that can greatly impact the cryptocurrency market is regulations. As governments and banks make an effort to catch up with cryptocurrency markets, the need for establishing rules continues to grow. This means the more stringent the regulations, the greater the likelihood that the price of cryptocurrencies will drop.
Economics
We’ve talked a little about economics and supply and demand, but there are more factors to consider. When instability occurs in the financial world of fiat currency, people start considering alternative currencies. However, cryptocurrencies are a young and vulnerable option.
Because of the volatility associated with cryptocurrency, there is a negative impact on recognizing it as a valid form of payment. Unfortunately, even though the technology continues to advance, the basic core principles remain the same. Complexity in performing micro transactions, centralized management, and restrictions continue to stand in the way of making the leap to fully non-centralized currencies.
Politics
The cryptocurrency market can become seriously destabilized in the event of a political situation. For example, when South Korea decided to close its currency exchanges, a collapse in the market resulted. Political regulation can have an adverse impact on the cryptocurrency market, which can result in an outpouring of global funds.
Another example was when China placed a ban on mining. Mining in China takes up a huge share of the total number of pools. This means a large amount of capital is in a concentrated area, which has an impact on market balance. When this happens, users can experience long-term delays.
Conclusion
As you can tell, there are many factors that can create fluctuation in the cryptocurrency market. The market is not decentralized, however, the currency itself is. Users have their own digital currencies, but the power lies in the hands of those that hold a significant number of shares. To get a better reading on the market, many factors should be given consideration, particularly the impact of scaling and regulation.
Because cryptocurrencies are so volatile, it’s almost impossible to predict the fluctuations that occur within the market. Some investors are put off by this fact along with the lack of stability inherent in digital currencies. An investment in anything can be a risk, however, the high volatility in the cryptocurrency market makes them an even riskier one.
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by Guest via NullTX