{"id":28,"date":"2021-08-05T23:33:58","date_gmt":"2021-08-06T06:33:58","guid":{"rendered":"https:\/\/theplandanhollings.com\/?p=28"},"modified":"2021-10-07T14:30:14","modified_gmt":"2021-10-07T21:30:14","slug":"why-does-cryptocurrency-fluctuate-so-much","status":"publish","type":"post","link":"https:\/\/theplandanhollings.com\/cryptocurrency\/why-does-cryptocurrency-fluctuate-so-much\/","title":{"rendered":"Why Does Cryptocurrency Fluctuate So Much? Understanding Market Volatility"},"content":{"rendered":"\n
When Katy Perry released Hot N Cold in 2008, she probably had no idea how prescient the words \u2018You’re hot then you’re cold\/You’re yes then you’re no\u2019 would be about the crypto market today \u2014 but here we are.<\/p>\n\n\n\n
Massive fluctuations in the price of Bitcoin and other assorted cryptocurrencies have been dominating the news lately. For the average investor, such uncertainty about price movements is an intolerable risk. But they could be missing out on thousands in unrealized passive gains from the market.<\/p>\n\n\n\n
Fortunately, by the end of this 6-minute explainer, you\u2019ll have learned exactly why the price of crypto fluctuates so much, why you shouldn\u2019t fear it, and how to capitalize on it to make money.<\/p>\n\n\n\n
Cryptocurrencies are digital currencies whose transactions are tracked in a distributed public ledger called the blockchain. Bitcoin, Ether, and Litecoin are all examples of popular cryptocurrencies. Like Forex or the stock market, you can trade digital currency in markets to make a profit. Unlike Forex or the overall stock market, the crypto market is incredibly volatile.<\/p>\n\n\n\n
In a volatile market, investors see large prices swings and high trading volume. A surplus of trade orders in one direction \u2014 all sells and no buys, for example \u2014 can result in these imbalances. Various things can cause markets to move, including economic and company news, opinions from well-regarded analysts, IPOs\/ICOs, or unforeseen earnings reports.<\/p>\n\n\n\n
Numerous factors can influence the movement of a cryptocurrency\u2019s value. Explaining the dynamics of every cryptocurrency on the market is a Herculean feat, so for most of this explainer, I\u2019ll be discussing the price of Bitcoin.<\/p>\n\n\n\n
Let\u2019s take a trip back to ECON 101 \u2014 Bitcoin\u2019s price, first and foremost, is determined by supply and demand. We\u2019re going to focus on the first part of that equation for now.<\/p>\n\n\n\n
Under the Bitcoin protocol, new Bitcoins must be created at a set rate (Bitcoins will stop being made after 21 million coins). The introduction of new Bitcoins to the market happens when miners process transaction blocks, which will slow down as time goes on. As a result, demand can grow faster than the supply, thus increasing the price of Bitcoin. Many cryptocurrencies have similar protocols in place, each designed to be an artificial inflation mechanism.<\/p>\n\n\n\n
A cryptocurrency’s supply is also determined by its availability on cryptocurrency exchanges. (This doesn\u2019t apply to Bitcoin\u2019s price). Suppose very few exchanges allow a cryptocurrency to be traded on their platform. In that case, it\u2019ll be challenging for the average crypto investor to buy any. Conversely, news that several exchanges recently added a coin could significantly boost its supply and alter its value. <\/p>\n\n\n\n
On a psychological level, nothing fluctuates the price of Bitcoin and other cryptos like news and government announcements \u2014 and maybe Elon Musk\u2019s Twitter account. But from an economic standpoint, there are solid reasons that the demand for Bitcoin is so high.<\/p>\n\n\n\n
Firstly, its value has skyrocketed, and people are interested in the currency as an investment vehicle. Beyond that, many are losing faith in their nation\u2019s fiat currency. Especially after massive money printing from their governments, citizens and consumers are searching for alternatives to store their money. The decentralized nature of Bitcoin and cryptocurrency overall makes it an attractive option, increasing demand and driving up prices.<\/p>\n\n\n\n
Several psychological factors go into the demand for Bitcoin and cryptocurrency in general. Overall, much of it can be boiled down to this: the cryptocurrency markets are highly speculative. Bitcoin’s value isn’t determined by a company’s financial performance or a national bank, so factors like company news, rumours of government regulations, and overall media coverage can cause huge price swings.<\/p>\n\n\n\n
These are just examples from 2021. The bottom line is that many Bitcoin and cryptocurrency investors are enthusiasts who follow industry news closely and react even quicker. Their rapid decisions and industry sensitivity are a big part of the market\u2019s volatility.<\/p>\n\n\n\n
Bitcoin isn\u2019t the only cryptocurrency out there. In fact, as of January 2021<\/a>, there are upwards of 4,000 cryptocurrencies available. Many investors will buy a coin because it\u2019s engineered to address unsolved problems. The Ethereum blockchain, for example, enables more than just cryptocurrencies: smart contracts, NFTs, tokenization of real-world assets are just a few examples. Someone who believes in these applications may opt to sell their Bitcoin in favour of $ETH. <\/p>\n\n\n\n I mentioned earlier that volatile markets tend to have high trade volumes. This is especially true for cryptos like Bitcoin. Unlike traditional stock markets, which have open and close times, cryptocurrency trades all day. (This is because it was initially meant to be digital money). As a result, people buy and sell Bitcoin and other cryptos 24\/7, creating a much higher volume of trades than we\u2019ve seen with stocks.<\/p>\n\n\n\n This is augmented by the market\u2019s low barrier of entry. Crypto is highly liquid, and there\u2019s very little regulation around the exchanges, so it has never been easier to do cryptocurrency trading \u2014 especially for newer investors.<\/p>\n\n\n\n It\u2019s worth noting, however, that the cryptocurrency market is still smaller than the global stock market. Combining high trade volumes with hypersensitivity to current events can create massive ripple effects that swing the market up or down. <\/p>\n\n\n\n For most people, the fluctuations that come with crypto can turn them away from investing completely. But this is a mistake! In a market where it\u2019s nearly impossible to predict whether a coin will go up or down, the only thing we know for certain is that prices. Will. Fluctuate. We just have to know when to buy low and when to sell high. How can you learn this?<\/p>\n\n\n\n The Plan with Dan Hollings! It\u2019s a comprehensive crypto training program run by Dan Hollings, marketing extraordinaire and crypto trader. By leveraging crypto bots to do his grid trading for him, Dan has figured out how to turn the crypto markets into a passive income machine. The best part? You can learn how to do this too.<\/a><\/p>\n\n\n\n There are several factors behind this, including media coverage, the volume of trades and transactions, new investors, low barriers of entry into the market, and competition from new and existing currencies.<\/p>\n\n\n\n Of the thousands of currencies out in circulation, Bitcoin takes the cake as one of the most volatile coins. As the first technology of its kind in existence, its long history makes it easier to track its fluctuations.<\/p>\n\n\n\n Cryptocurrency volatility simply refers to the wide range of price jumps that can happen in the crypto trading markets at great speed. They\u2019re considered volatile because they are unpredictable and rapid.<\/p>\n","protected":false},"excerpt":{"rendered":" When Katy Perry released Hot N Cold in 2008, she probably had no idea how prescient the words \u2018You’re hot then you’re cold\/You’re yes then you’re no\u2019 would be about the crypto market today \u2014 but here we are. Massive…<\/p>\n","protected":false},"author":1,"featured_media":119,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"unboxed","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false},"categories":[25],"tags":[12,13,15,14,16,17,20,21,22],"yoast_head":"\nHigher trade volumes<\/strong><\/h3>\n\n\n\n
How You Can Use Cryptocurrency Volatility to Your Advantage<\/strong><\/h2>\n\n\n\n
Frequently Asked Questions<\/strong><\/h2>\n\n\n\n
Why are crypto prices so volatile?<\/strong><\/h3>\n\n\n\n
Which crypto is the most volatile?<\/strong><\/h3>\n\n\n\n
What is cryptocurrency volatility?<\/strong><\/h3>\n\n\n\n