What Makes Cryptocurrencies So Volatile?

Ever wondered why cryptocurrency is volatile? Well, many factors affect the price of crypto, such as — the demand and supply, total supply, trading volume, the exchanges it trades on, its position in the market, competing cryptos in the market, and so forth. But are these factors the only reason why cryptocurrencies are volatile?

There are over 5000 cryptocurrencies in the market, and their price fluctuates now and then. Moreover, the past few years have been a rollercoaster ride in the crypto-amusement-world. In any investment or market approach, risk-management plays an important role, but wouldn’t it be nice if you could learn what leads to crypto volatility and predict?

In this blog, let’s know What Makes Cryptocurrencies Volatile?

1. The Market Impact

The first cryptocurrency was launched in 2009, and ever since, it has received a tremendous amount of attention. But it is still regarded as an “Emerging Market”. The reason it is called an emerging market is in comparison with the other market approaches such as the stock market, forex market, gold market, and so forth.

Also, the crypto market size is considered minuscule; thus, even a slight change in the market can result in volatility. A single rumour, comment, news, updates, announcements, anything can influence the price movements.

For instance, if a group of investors decides to sell Bitcoin, it will create a fluctuation in the crypto market and lead to volatility; one example is pumping and dumping. The other event was when Elon Musk tweeted about Dogecoin that caused a spike in Cryptocurrency’s price.

Also Read, Factors That Determine The Price Of Bitcoin

2. Intrinsic Value

Cryptocurrency is believed to have little to no intrinsic value, since it is treated as a digital asset that is not backed by anyone or anything such as physical commodity or currency. Few cryptos have no intrinsic value, while others can be considered to have some intrinsic value because of their use-cases. There are theories that cryptos are entitled to intrinsic value due to their mining process. Thus, many believe that the change in the prices of cryptocurrency is purely based on speculations.

3. Speculations

Cryptocurrency as an investment is based on speculations; wherein, the investor works on guesswork whether the price will move upward or downward, leading to buying and selling of cryptocurrency. Whereas, many investors are constantly working on this process of betting, causing further price volatility.