Why Is Cryptocurrency So Volatile
Despite its unpredictable nature millions of people around the world are continuing to invest in cryptocurrency. Its volatility is one of the elements that attract so many people to the currency as there is the potential to earn huge amounts of money.
There are estimated to be over 4,000 cryptocurrencies in the world. Bitcoin is the most well-known type of cryptocurrency. Other well-known kinds include; Ethereum, Cardano, Tether and Litecoin.
The key reason for cryptocurrencies volatility is their newness and the digital currencies volatile nature is one of the reasons why so many people refuse to invest in it.
When comparing cryptocurrency to other asset classes that have some sort of governing or controlling agencies, cryptocurrencies are not controlled by any entity in the traditional sense as fiat currency or equity or bonds are. The lack of a controlling agency is what either motivates investors to dabble in crypto or make them sceptical.
Another reason that contributes towards the volatility of crypto is the fact that in the case of Bitcoin and Litecoin and many other forms of crypto there is only a limited supply available.
Bitcoin supply is limited to 21 million, however because it is the number one and most popular type of crypto, demand and supply forces come into play and constantly pushing the price of bitcoin up and down on a consistent and unpredictable basis.
Cryptocurrency is currently an emerging market but is quickly gaining popularity as well fueling speedy disenchantment among investors. Despite receiving huge amounts of media attention, the crypto market is still minuscule in comparison to the markets of traditional currencies, or even gold. The minuscule size of crypto means that even smaller forces a group of people holding large amounts of crypto coins can influence the trade. Even if they sell only Bitcoins, it would be enough to crash the whole market.
Furthermore, the blockchain or other alternative technologies on which these coins operate are still evolving. The concept of Bitcoin was only first proposed a decade ago. There is a problem associated with scalability, when a smart contract is not validated with the timeframe expected, producing sudden downward pressure.
A recently published survey outlined that the most common reason Australia’s invest in crypto is to view it as a long-term investment. In comparison, those surveyed stated that the most common reason for deciding to not invest in crypto was due to the fear of losing money or becoming a victim of a scam.
Many people who are involved in the crypto community believe that there are no indices that are capable of measuring the crypto price volatility. However, you can take a look at the historical price charts to see that skyrocketing peaks and depressive troughs happen at a more rapid and more extreme pace in crypto prices when compared to prices of assets in mainstream markets.
