If we talk about the cryptocurrency market, it is undoubtedly the most volatile space where you can invest your money. However, in the initial stages, cryptocurrencies were not so volatile. If we talk about the past few months, it has gone viral, and there are significant fluctuations in the prices of some dominant Krupa currencies like bitcoin. In December 2020, the value of bitcoin was standing about $20,000. If you talk about the reports from January 2021, the prices of bitcoins crossed a mark of 40,000 United States dollars, and that is where the speculations begin. The bull market approach and the bitcoin prices reached the highest $69,000, in November 2021. Towards the opening of 2022, bitcoin prices again started to decline, and there are specific reasons behind the scene. We can consider the reasons like events from Kazakhstan, the United States Federal reserve new policy and find out why bitcoin trading can be profitable .
There is one question among the investors: What are the reasons cryptocurrencies fluctuate more often. Have you ever wondered what the reasons why cryptocurrencies fluctuate are? Well, if you think about it many times a day, it is undoubtedly the time you know about it. The last few months have been very wild for the cryptocurrency market as a whole, and it is necessary to understand the reasons for this. A few factors affect the majority of the cryptocurrency market, and we will present all of them here. A clear understanding of all factors leading to the price volatility in bitcoin and other digital coins will provide you with an upper hand in the crypto market, and you will make more money.
Emerging market
The main reason cryptocurrency prices fluctuate nowadays is that it is still an emerging market for the global economy. Even though we see extensive media coverage on these digital coins because of their popularity, they are still emerging. If you compare them to traditional cryptocurrencies and even gold, there is still a lot in the cryptocurrency space, especially bitcoins. If you believe that bitcoin has reached maturity, you undoubtedly think very wrong. We can see that even if a small group of investors decide to sell off their all crypto coins, it can crash the whole cryptocurrency market at a single point in time.
Developing technology
The whole cryptocurrency space is working on the Blockchain system, and it is an alternative to the existing traditional technology. You need to understand that the Blockchain system is also evolving, just like the cryptocurrencies. It has only been a decade since we have discovered the popularity of bitcoin and cryptocurrencies. The idea is still to go far beyond your imagination, and there is a lot of scalability problem in it. You might have seen that it can produce intelligent contracts, but sudden pressure on the market is going to make it crash drastically.
Speculations
The cryptocurrency market’s primary reason for thriving is none other than many speculations by the enormous investors. You might have seen that investors make a bet on cryptocurrencies and their prices to make a profit. Because of the fluctuations and speculations by the different investors, there is a sudden influx of money and the opposite, which leads to the idea of volatility in the whole cryptocurrency space.
Pure digital asset
Being a decentralised currency, digital coins like bitcoin are not backed by any physically existing commodity. It is one of the most important reasons because of which their prices are less likely to be stable. The prices of bitcoin and other cryptocurrencies are decided by the demand and supply mechanism. It is not like traditional currencies, so there is no stabilising factor. Furthermore, no government is backing the bitcoins, making them highly volatile to invest your money.
Fragile investors
There are many fragile investors in the cryptocurrency market, which leads to fluctuations in prices. If we talk about real estate or the stock market, experts sit on top of them. However, the people who are working part-time in investment work with cryptocurrencies. They invest money to make huge gains, but they withdraw their investment if that is not accomplished. Whenever this thing happens, it leads to fluctuations in the cryptocurrency market.
