Surely, we can all agree that the cryptocurrency market is widely different from any other market we’ve been able to witness. Of course, it has some similarities, like it’s worth being determined by demand and supply. However, it doesn’t have any kind of connection with any official institutions and doesn’t have any authority above it.
When you take a look at it, we are talking about a genius invention that caused skepticism among the public. Surely, people were surprised with this concept, and for quite a long time, the majority of its aspects remained a mystery. So, it’s no wonder that so many people were uncertain about it.
Nowadays, we can see that the situation has changed massively, and many people are interested in investing in this concept. Surely, Bitcoin attracts the highest amount of interest, because of the worth it reached in the last couple of years, mainly in 2020 and 2021. During the first months of 2021, Bitcoin’s worth rose to $60,000, which is truly exceptional.
With the introduction of communities and different apps, the trading process became much easier than it was. If you would like to take a look at one of the apps you can use, be sure to click here. Even with all of these elements we have in front of us, we can see that the question of price volatility is still a really big one. Let’s take a look at why it is so volatile.
What are the Reasons?
The price of cryptocurrencies is a really big question, that requires a proper answer. Now, we would like to present you with some of the most important reasons why the price is so volatile, and why it changed so much through the years.
1. A Small Market
Despite we can see that the concept of cryptocurrencies has attracted a lot of interest, we can see that the market is still relatively small. Of course, it is not as small as it used to be a couple of years ago. Naturally, we surely know that, let’s say, Bitcoin mining is not over until it reaches 21 million coins. While it is uncertain when this process will be finished, it will surely play a pivotal role in the further growth of the market.
At the same time, we can expect growth from all other main cryptos, like Ethereum, and Litecoin. Since we are talking about an unfinished market, it’s no wonder that prices are still volatile. Another aspect we would like to mention is price halving, which occurs every couple of years. The last time it occurred was March 2020, when people mistakenly believe that the price drop was caused by the COVID-19 pandemic.
2. The Media’s Role
We are witnesses of how big of a role media plays in our everyday life. It can be said that there are almost no aspects that were untouched and uninfluenced by it. The same can be said about cryptocurrencies. Certainly, every investor follows all the latest information and trends that derive from this concept. Whenever something new comes up, investors will think twice before they invest their hard-earned money.
Sure, it needs to be said that there are a lot of websites that write about this topic, which cannot be described as credible. So, this is the main source of many problems that can have a big influence on price volatility. Naturally, we can say that a high percentage of investors have been able to find those who can be considered credible. Surely, having a proper insight into all the movements is crucial to determine whether you should invest or not. The reason is, it dictates the price fluctuation.
3. The Lack of Fundamental Value
The most important thing we need to know before we will be able to understand all about cryptocurrencies and how volatile their prices can be is the lack of real value. It means that there are no bonuses you can expect to receive from these transactions. Since it doesn’t have any inherent value, there’s no way for us to expect a stable price for the time being. Plus, the support for its value is not as traditional, as it is with fiat currencies.
Naturally, that doesn’t mean that it doesn’t have any value. We can see that it has some. However, it is not as stable as it will be in the future when the complete market stabilizes. But it needs to be said that many investors are still quite uncertain whether they should invest in this market. Last but not least, it needs to be said that it doesn’t matter how high fundamental value is, it is important how investors perceive it.
4. The Lack of Regulation
Since cryptos are not regulated by official institutions like banks and governments, it needs to be said that many people are uncertain about investing in them. At the same time, a lot of investors want to take an advantage of this situation. As you can see, we are talking about a balance. Plus, since there’s no official regulation, it needs to be said that chances of having a stable worth will simply not be possible.
We can see that some movements show us that regulation is possible in the future. These cryptocurrency laws & regulations are continually changing so you have to look up your state’s current cryptocurrency laws and/or contact a law firm like Gamma Law to determine what, if any, legal requirements or restrictions applyIt needs to be said that it will not be an option, it will become a necessity. If you take a look at some of the studies and reports, we can see that the adoption rate has skyrocketed in the last couple of years. That reason alone is enough to see that it will require some kind of regulation. However, how that will be done, is a great mystery to pretty much all of the public.
The Bottom Line
Knowing all the most important aspects of every cryptocurrency before you invest, is an absolute must. As we’ve said, price volatility is probably the most important question that requires an answer. Therefore, we’ve provided you with the most important reasons you will need to have a proper insight into. We are sure you will find them useful.