Cryptocurrency Bitcoin: The answer to why the crypto market is so volatile may be because the cryptocurrency market is still in its very early stages. It is just getting started as a currency and a medium of investment. Investors are experimenting with their money in order to make quick money.
The beginning of the year 2021 saw a tremendous boom in the cryptocurrency market. This year cryptocurrencies have attracted a tremendous amount of investors. At the beginning of the year, a large number of new investors joined the crypto ecosystem, however, their stance was definitely a bit cautious. The market gave them strong returns in the beginning, but the way the market took off in the end of April and early weeks of May, the investment of many investors was cleared. How big this decline was, it can be understood from the fact that the most popular cryptocurrency bitcoin fell from its all-time high of $ 64,000 or about 47.14 lakhs to $31,000 or about 22.8 lakhs. Although the market has shown improvement after this, but volatility remains.
Why are cryptocurrencies so volatile?
A simple answer to this question can be that- because the cryptocurrency market is still at its very infancy. It is just getting started as a currency and a medium of investment. Investors are experimenting with their money in order to make quick money. Also trying to find out how the prices of cryptocurrencies fluctuate and whether they themselves can have any effect on their prices or not.
Understand with the example of bitcoin. There is tremendous movement in its prices. At the beginning of this year, it was running under about $ 30,000 or about 22.09 lakh, but it started climbing in February and it doubled in April. However, at the end of the same month it reached its level in January. In June, it showed a recovery and in August it again crossed $ 50,000 or about 33.83 lakhs. However, after coming here, it again showed a decline. It is somewhat the same story with other cryptocurrencies.
Are there other factors that affect the price movement of crypto? Yep, here’s a look at them:
1.What is the usefulness of currency
How many people use any crypto coin and for what, this thing has a big impact on its price. If most people spend the coin instead of holding it, then its price will increase. In such a situation, when many restaurants and other online platforms are announcing to accept payment in cryptocurrencies, then their utility will increase and this will increase their prices.
2.How many coins are in circulation
There is some limit on the mining of cryptocurrencies. While developing bitcoin, it was decided in its protocol that only 21 million bitcoins could be generated in the world. In such a situation, when more and more people join the industry, the availability of coins will become less so that their prices will go up. There are also some coins that use a burning mechanism, in which some part of the supply is burnt out to increase the value of a coin.
Whale accounts are an interesting thing in the crypto ecosystem. Whale accounts are those that hold a large share of the total circulation of a coin in the market. They have large holdings of coins and when they start selling their shares, the prices fall. If some whale accounts simultaneously start running according to a strategy, then they start influencing the market and the prices are affected in this way.