Finances

Why Are All Cryptocurrencies So Volatile?

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Written by Quentin Hack

If you are interested to invest in some cryptocurrency, you should learn more about the important features of this market. First of all, there are many differences when we compare it with other financial markets. Still, you can use the same strategies as when you are trading with stocks. The main difference is that values are not determined with the same factors. Some of the most popular digital assets are Bitcoin, Ripple, Ethereum, and more.

The leader is BTC, with its current price of around $55,000. Less than a month ago, it was on a record-high value of over $63,000. The great thing about this cryptocurrency is that there is a tendentious for continuing growth over time. If you bought it only a year ago, you will not how 10 times more on your investment. Therefore, it is not a surprise that so many people are interested in trading with this virtual asset. If you want to learn more about trading on this market, visit this site.

In case that you already read more about some features of trading with cryptocurrencies, you might have noticed the frequent changes in values and very high volatility. This is one of the main reasons why it is so popular with investors in the first place. It is essential to learn more about the factors that are causing frequent changes in prices. We are going to analyze more on this topic in the following article.

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Decentralized System

As we already mentioned, this market is unique because it is decentralized and not connected to standard financial flows. Also, fiat currencies and stocks are typically backed with some physical value, which is not the case with cryptocurrencies. These digital assets represent a value by themselves, and that is related to technical features like safety, speed of transactions, transparency, and more. In that matter, supply and demand are playing a much higher role in the determination of the value than it does with other types of assets on the market.

Predictions

While it is important to read analyses from experts, where you can find out more about potentials and risks related to some trading asset, you should keep in mind that a large portion of these predictions is introduced by people who are active in this market. It is not rare that large investors might try to share news about the great potential of some cryptocurrencies after they invest a lot of money in them. Besides that, speculations are frequent like as with stocks.

Still, there are advantages to this factor. You can become a day trader, and earn profit by buying and selling highly volatile units every day. Besides that, you can combine that activity and withholding a few units that have an excellent potential to grow over time. Everyone is looking to find new and cheap crypto that might reach the same value as BTC. There is no way to predict such future of any current asset, but there are some affordable units with great potentials, such as Stellar, Tron, Ren, Ripple, and more.

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It is Still New Market

Blockchain-based currencies are available for only around 12 years. That leads to the fact that this market is still very young, and there is still a lot of space for changes and further development. First of all, some countries have just recently started to work on the full integration of blockchain systems in standard financial flows. However, most countries still lack regulations and laws related to this market. That leads to potential risks and uncertainty. For example, if some country with a strong economy decides to ban cryptocurrencies, that will certainly have a negative effect on values.

On the other hand, there are only minor changes for that, and we can see that many governments are already working on the full implementation of these assets. For instance, BTC and other cryptos in the United States are treated as property, which is important to know because you will have to pay taxes after selling it on the market. You will pay taxes for capital gain. The amount that is taxed is the difference in value when you bought it and after you sell it.

The fact that it is still a very young market leaves a lot of space for improvements. People just started using their e-wallets for standard payment, but most people are still investing in crypto only because of the potential profit. However, with the increased use of digital wallets globally, the values with grow even more.

Media Have Important Role

Similar to speculations and predictions, the media are also playing an important role, and also can affect the values. For example, we can find many articles where some experts are saying that the price of BTC will hit $100,000 by 2025. On the other side, some are suspicious of this market, and who find the connection of transactions with e-wallet and not being able to track funding of criminal and terrorist groups. There are indeed some deficiencies, but that can also be solved with some laws and regulations related to owners of digital wallets.

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Great Competition

Another factor that is causing frequent changes in values is the fact that there are over 2,000 different cryptocurrencies available today. The main risk with cheap units is that large investors could affect their value after investing a lot of money, and selling them after the price starts growing. Their activities could lead to sudden growth and an even faster drop in value in case that they sell all of their assets in a short time. Moreover, there might be some new cryptocurrencies with excellent technical features that will represent a great investment. Therefore, the best option is to combine different units, which will increase the chances to make a profit.

Last Words

The best way to be successful by trading in this market is to keep in mind that many factors could affect the prices. Therefore, read the news all the time and try to be ahead of other investors to make the right choice at the right time.

About the author

Quentin Hack