The popularity and acceptance of cryptocurrencies is increasing in mainstream financial transactions. At the same time, their volatility is also increasing. The the cryptocurrency market has been volatile since it began, but the last two years have been particularly turbulent. There are many reasons for this. Any trader will need to know how to work around the volatility to make their product appealing to its target audience.
What Excites People About Cryptocurrencies
The ability to make a huge amount of money in a short space of time is what appeals to people about cryptocurrency. Another reason why people resort to it is privacy. Safety is also important. The volatility aspect is what makes cryptocurrency so exciting for investors.
A volatile asset is the only type of asset that can deliver a large amount of return in a short period of time. These healthy gains have made cryptocurrency very popular in developing countries like India. Investors who closely track the price of Bitcoin in India can buy low and sell high to generate profit. This trend is creating a new investor class of India’s population.
Cryptocurrency is still an emerging area of investment
One of the main reasons for the continued volatility of cryptocurrencies is that it is still an emerging industry. While Bitcoin and the other coins receive a lot of media attention, the size of this market is small compared to gold or fiat currencies. Even at the peak of the cryptocurrency market, its cap was only $ 800 billion. That’s a pocket change compared to the $ 9.6 trillion gold market cap. The US stock market has approximately $ 30 trillion in assets. With a small market, a small group of investors can create a big impact depending on what they do. If an investment group decided to sell $ 100 million in Bitcoin, the market would destabilize and collapse.
It’s all Digital
Bitcoin is a 100% digital asset. There is nothing to back it up. Its price is set at its perceived value. If people want it, they will pay for it. Supply and demand rule this market. If not many people want to buy Bitcoin, its price will drop. This can result in a negative feedback loop or a plumbing cycle of values.
The Infrastructure is Under Development
Blockchain is still in its early development stages. Although many companies use it, much remains to be done to build the infrastructure. The scalability problem is pushing the prices of cryptocurrencies lower. On the other hand, some platforms and apps can send soaring values.
Speculators
Speculators are driving the market. They bet on prices. The volatility attracts them. Market speculation only adds to the volatility. This creates a positive feedback loop of chaotic activity.
Good and Bad Press
The media, whether it creates a good press or a bad press about cryptocurrency, feeds into the speculation and volatility. Investors and speculators are always scouring the internet for tidbits to inform their decision-making processes. They try to do this before the next investor does. They even create algorithms to check news feeds. In many cases, the media publishes a story before it even has a chance to check whether the information is accurate or not. Publishing news based on rumors with no fact-checking only feeds into the volatility of the cryptocurrency market.