Reasons Behind Price Volatility of Cryptocurrencies

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Cryptocurrencies
Cryptocurrencies

Although Bitcoins and cryptocurrencies emerged as one of the best alternatives to stock and shares, their prices are pretty volatile. Price corrections are constantly going on  digital currencies, and many factors make this new investment mode the most volatile. At one instance, the prices skyrocket, and again at some next, the prices of Bitcoins and other cryptocurrencies nosedive. 

If you look at the price history of cryptocurrencies, you will observe that there have been many high and low ebbs during their journey in the last twelve or thirteen years. Many global economic and political factors, sentiments of the investors, and security of many trading platforms add to the price volatility of the cryptocurrencies. 

The Primary Reasons for Price Volatility

Though Bitcoin, the most sought-after cryptocurrency, emerged a decade ago, there were very few takers in the initial days. However, with time, the scenario changed, and suddenly there was a rise in the number of investors seeking this coin. Due to Bitcoin’s success, many new cryptocurrencies were introduced to the Bitcoin Circuit. However, many cryptocurrencies, including the age-old Bitcoin, are considered new in the market even today.

The prices of the coins are yet to settle like many new concepts, and thus they are constantly facing corrections. Financial pundits are yet to ascertain the actual price of cryptocurrencies. Some opine that they will grow more and will replace the fiat currency, while others forecast that there is no future for cryptocurrencies. Thus the price of cryptocurrencies is swinging either way at times when one or other theory comes to the forefront.

  • Fluctuating Global Market– Although cryptocurrencies are considered digital gold, investors are still skeptical of comparing them with real gold. The volatility and dynamic price fluctuations are the key reasons keeping people dubious about investing in Bitcoin. The acceptance of cryptocurrencies and the maturity of the cryptocurrency trading markets like hands and gloves. These factors are influencing the sentiments of the investors. At one point, investors like Elon Musk and others are investing considerable amounts in cryptocurrencies and boosting the market sentiments and attracting new investors; again, at the same time, blockchain owners like Chris Larsen or Jed McCaleb are losing vast amounts of money.
  • The Geopolitical Scenario – As cryptocurrencies fought the odds for more than two and half years due to the worldwide pandemic, the unrest in the European region started. It created a panic in the investors’ minds, and the cryptocurrency prices got hammered as there were more sellers than buyers. The prices of cryptocurrencies depend entirely on demand and supply; thus, the volatility continues. 
  • Increase In Interest – With the central bank of many countries, including the federal reserve’s increasing the interest rate to cope with high inflation rate due to poor economic conditions, investors who started to invest in cryptocurrencies are somewhat going back to traditional investments in banks and financial institutions. They are looking for secured returns than taking the risk in the volatile market of cryptocurrencies. Thus as investors leave or enter markets, the price fluctuates. 
  • Rumors And Laws – Rumors spread like wildfire in the money market, and it has the potential to dramatically impact the value of cryptocurrency. Simple news of some wealthy person selling the cryptocurrencies to meet some financial need can spread the word amongst the investors that the seller is acting that way, sensing the downside of the market value. Again a simple tweet from some wealthy celebrity can boost the market price. 

Wrapping it up !!!

Many countries are thinking of framing specific norms for cryptocurrency trading, and many 

countries are also thinking of introducing their cryptocurrency. Thus investors sense that there will be no maintenance of anonymity or that cryptocurrencies will no longer stay decentralized. Therefore the prices are becoming volatile.

Conclusion

Speculative markets are always volatile. Cryptocurrency markets are similar to traditional stock exchanges. Over time, the conventional stock exchanges have made numerous corrections, reached a stable price, and are not that volatile like cryptocurrencies. It will take some more years for cryptocurrency prices to be stable; till then, the market will remain volatile. Although many investors feel they will lose their bounty by taking the risk, many others believe in earning huge profits by investing in cryptocurrencies. The opinions are truly dicey for crypto volatility.    

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