Why is the cryptocurrency market so volatile today?
Compared to classic currencies, which are currently stabilised, cryptocurrency experiences serious fluctuations, and sometimes the figure can vary from 5 to 10% per day. Of course, volatility is enjoyed by many traders today, as spikes can be profitable if you buy or sell the coin in time. In some cases the fluctuations can be as much as 50%, in rare cases the figure goes up to 300%. But why such variations in this market and what is it related to?
Lack of intrinsic value
Numerous cryptocurrencies today do not sell a product or generate any income. All this without dividends, while only a small part of the profits is allocated for further development. But how to understand when the price is high and when it is overpriced? That requires fundamental data on which the right information can be based. But right now there is only market sentiment, which can change under the influence of the media. And they often just make money from the views.
No regulation
This is another factor that has to do specifically with cryptocurrency, and price volatility can affect the bottom line value of a coin. Often this is done by placing orders with the further intention of cancelling everything. But if the market is regulated, then no such fakes are allowed to be placed.
Supply and demand
In fact, even economics plays a role. If the demand for assets grows faster than the supply, so will the value. And this has been particularly seen with bitcoin. At one time the demand was just enormous, while the supply didn’t match the mass adoption in all cases, so the value of bitcoin was rising.
No institutional capital
Of course, there is no denying that individual, fairly influential venture capital firms or simply large private individuals are investors. But that leaves institutional capital on the sidelines.
There is a view that the market situation will change for the better soon and one can only wait.
The size of the market itself
This market is still growing and the total value of the market now reaches 250 billion Euros per year. Although the amount is exorbitant, it is not worth comparing it with the classical foreign exchange market.
And it is for this reason that only the foreign exchange market can maintain stability, even if there are major movements in the market. With cryptocurrency, things are quite different.
Should we expect volatility to decline?
Over time, we can say that there will be more regulation of this market, more investors, so the cryptocurrency market may be looked at differently. And there will be more benefits, as the seller is increasingly finding more affordable ways to accept cryptocurrency. And modern technology is only getting better.
