, ,

What makes the Cryptocurrency Market so volatile? 

Posted by

 Introduction To Cryptocurrency Market

In our previous post, we covered cryptocurrency. If you missed then you can read more

Approximately 14.85 lakh bitcoins were traded in December 2020. According to the latest figures, the company crossed $40,000 the previous year. By April, it had risen to $65,000. During May, it crashed and remained below $23,000 through June.  Similar behavior has been observed in most other popular cryptocurrencies. 

In this market, there are a few factors that determine its trajectory. They are listed below.  

Cryptocurrency Market in development 

The cryptocurrency market continues to gain popularity while also disenchanting investors. It is still a relatively new market. Although conventional currencies and gold are not a big deal compared to bitcoin, this market has gained media attention. Even if they just sold bitcoins, the market would crash. 

  • Digitized assets 
  • Most cryptocurrencies, including Bitcoin and Ether, are virtual assets with no backing in physical assets. Therefore, according to supply and demand, their prices are purely determined by those two factors. When there is no government backing or another stabilizing factor, the pool or demand can fluctuate for any number of reasons. 
  • Technologies in development 
  • There is still much progress in the blockchain or other technologies used to operate these coins. When smart contracts aren’t validated in the timeframe expected, there is a problem with scalability. 
  • Investors with risk aversion in Cryptocurrency Market
  • There is no need for expertise in this market, unlike the real estate or stock markets. Most of the investors are part-timers. Sometimes they lose patience when the expected gains do not happen and withdraw from the venture. These frequent involvements and withdrawals also cause volatility. 
  • Value of Bitcoin in the Future is Uncertain 
  • Variations in perceptions of Bitcoin’s intrinsic value as a store of value and as a mechanism to transfer value also significantly influence its volatility. When an asset can be predictably used in the future, it is considered a store of value. Discounts can be saved and exchanged for future goods and services. 
  • An asset transfer method is any method of passing along property from one party to another in the form of assets. Although Bitcoin is volatile at present, it promises almost frictionless value transfers. So, in consequence, we observe that the value of bitcoin can fluctuate in response to recent events, just as fiat currencies do. 
  • Risks associated with large currency holders in Cryptocurrency Market
  • To some extent, Bitcoin volatility is also influenced by holders of large amounts of the currency’s outstanding float. Investors with bitcoin positions exceeding $10 million are uncertain of how to convert such a prominent position into fiat without causing the market to be drastically affected. The answer may not be apparent, given that most cryptocurrency exchanges impose withdrawal limits far below that threshold in 24 hours. 
  • Security breaches cause volatility 
  • As a result of this approach, numerous open-source software initiatives, such as Linux, have been successful. To build robust solutions, bitcoin developers need to reveal security concerns.  
  • Among the cryptocurrencies that have been hacked or had cryptos looted and many other cryptocurrencies. An early example of this was the 10% drop in Bitcoin prices in a month that occurred in April 2014 after Google securities.  
  • A high-profile loss raises fears 
  • Volatility was doubled by the thefts mentioned above and the news of the losses that followed them. By reducing the overall float of bitcoin, they increased scarcity, thereby potentially boosting the value of the remaining bitcoins. However, the adverse effects of the following news cycle overrode this rise.  
  • Furthermore, other bitcoin exchanges saw Mt. Gox’s collapse as a positive, harmonizing the currency’s volatility with the failure of a massive trade.  
  • Bitcoins and countries with high inflation 
  • The volatility of Bitcoin versus USD has been much higher than that of the high-inflation Argentine peso.  
  • Investors are likely less exposed to high inflation risk in Argentina by using these debt instruments than other debt instruments denominated in their currencies.   
  • An increase in taxation reduces volatility 
  • Moreover adverse, any statement that recognizes the currency positively affects its market value. Bitcoin is regarded as an asset by the Internal Revenue Service (IRS). This has resulted in mixed results for bitcoin’s fluctuation. 
  • On the other hand, claiming its adverse property was an unfavorable decision by the IRS.  According to the new tax law, all currency transactions must be recorded according to their market value, no matter how small. Many users find that keeping records is too much work for what it is worth, which causes adoption to lag. 

Thoughts on Cryptocurrency Market

We now have a better lookup and idea of the Cryptocurrency Market and how this actually works and impacts our investments.

If We smartly understand these terms we can say we will be in good shape and will be getting good growth over the coming years in the future.

If you like this information or you have something to suggest about Cryptocurrency Market that should be included in this article please comment or reach us. 

 

Leave a Reply

Your email address will not be published. Required fields are marked *