Home / Ripple / The 7 main reasons why the cryptocurrency market is so volatile

The 7 main reasons why the cryptocurrency market is so volatile

Speculative assets are considered useless in the world of finance. The very idea of ​​hypothetical activities is associated with scams and non-performing possessions that are valued far above their intrinsic value. The price of a risky asset depends on what someone is willing to pay for it. So, if people decide that bitcoin, or another cryptocurrency, is the future, they will buy it and then increase its price. But if they decide that it has no value, its value will go down even faster than it has increased.

However, this is not the only reason why the cryptocurrency market is so volatile. Future returns are more than a promise, rather than a bona fide guarantee. Some cryptos are classified as titles comparing them to "cash-generating assets". Token distribution coins like Kucoin and NEO seem to fall into this category. But, even these are speculative in nature because their value is theoretical, ie they also depend on the market demand.

Veterinary cryptocurrency investors know these problems for a fact. They understand the volatility of cryptographic markets and work with it to create profitable opportunities for themselves. Here are 7 of the main reasons why the criptos are so volatile:

Yes, the initial evaluations of Bitcoin and other cryptocurrencies have been enormous. However, the fact remains that cryptocurrencies do not sell a product, create a revenue stream, earn profits or somehow provide jobs for thousands of people. How do you assign a value to this entity?

A minimum amount of the total value of a cryptocurrency evolves. There is no way of knowing if it is overbought or oversold. There is no method to determine if it is too expensive right now or if it has a good value that is ripe for investment. There are no precedents or foundations that can provide us with clues to these issues.

There is only one thing on which the value rests: market sentiment. Crypto is volatile because the market depends on the states of mind and the feelings of the media, marketers and crypto fans.

Cryptocurrency is conquering the world at the speed of light. Unfortunately, because governments do not know how to deal with it, they are blocking us strongly. There are few or no regulations that guide the growth of this phenomenon. This allows the manipulation of the market, which again leads to the volatility of cryptocurrency prices. This is very discouraging for institutional investors because they have no guarantee if their capital will be really safe if they put in cryptocurrency. Finally, the arrival of new cryptocurrencies, such as the new AutoCoin, an encrypted vehicle evaluation system led by the autoblock adds to the mystery of the crypto-market.

The institutional capital does not seem to trust the encryption with investments, even if many hedge funds and people of high economic value are fans of the crypt. Bank leaders, when they are not registered, will admit that there is some validity in the idea of ​​cryptocurrency. But because of the abstract nature of this resource, they are not yet willing to commit huge capital or even publicly participate in the cryptic markets.

This institutional capital can take many forms, it could simply be a trading desk charged with easing market volatility and making it more efficient, or it could be a mutual fund that makes long-term purchases, on behalf of large investors. The good news is that this is finally changing, as we see a certain impetus on a possible encryption ETF .

Crypto investors know that exchanges can be violated. And that's why they never hold coins on these platforms, effectively moving the current supply of cryptocurrencies from exchange portfolios.

Consider now the marketable shares of listed companies and how all these transactions can be on a single stock exchange. This makes investments easy and transparent. Cryptos, on the other hand, presents several security challenges, especially for those who are still learning the tricks of the trade.

& # 39; The slippage & # 39; it occurs easily in the encrypted markets when there is a large order able to eat in the order books of an encrypted exchange. The crash of GDAX's Flash Ethereum is an extreme example of things that went too badly, too quickly. But less dangerous versions of this same thing happen almost every day. And because big traders can tilt the market in any direction they want, the market becomes more volatile.

When investing in cryptocurrency, do not expect to earn money until you are 65 years old. As most investors understand this, they are less concerned with daily market fluctuations or even with annual price movements.

Cryptocurrencies are generally inaccessible for retail brokers or even for financial advisors, and that is how their market can curve a whole ecosystem of investors in the short term. In turn, these investors take revenge with doubts about the foundations of the crypt.

The first to adopt cryptocurrency were people who are familiar with technology and know how to manage Internet-based trading platforms and portfolios. But the trouble is that these people are the ones who usually do not have the patience to maintain a long-term investment, and they alarm the markets that lead to panic sales, and buy FOMO.

Crypto was created as a reaction to the strict rules of the government and the central bank on currencies around the world. The millennials were the first to adopt them because they distrust governments and love all that is technological. They also no longer have disposable income and much less time spent as an employee. This is a dangerous combination.

As a result of their circumstances, millennials are more prone to taking significant risks in the hope of creating a land of money for themselves. They are willing to bet money they do not have, and they really can not afford to lose. It seems that the millennials are working in tandem, but it is each for itself in the world of the crypt, which leads to a mentality of such flocks.

Every few days we hear about some governments that "banish" bitcoins or try to regulate the cryptographic market in some way. From China and India to the United States, governments and old school bankers do not know how to handle cryptocurrencies, and so they try to fear that people will refrain from encrypting altogether. This, of course, contributes to the volatility of these markets.

It is essential to understand that cryptocurrency is here to stay. It is the wave of the future and, just like the stock market, it will eventually give way to investors and long-term holders. This volatility, however daunting it may be, does not detract from the feasibility of cryptocurrencies as an investment.

CHI SIA Erica Silva

Erica Silva is a blogger who loves discovering and exploring the world around her. He writes about everything from marketing to technology and science. She likes to share her discoveries and experiences with readers and believes her blogs can make the world a better place.

Find it on Twitter: @ ericadsilva1

Source link