One of the main characteristics, or properties, of the crypto market is its volatility. Cryptocurrency prices can fluctuate wildly within hours. This causes many potential and existing traders to wonder if they should invest. However, understanding where the crypto market volatility comes from can help you make better trading decisions.
Regulation
How it is regulated could well be the biggest factor affecting the volatility of the crypto market. It could react strongly when a government announces new rules or restrictions on cryptocurrencies. For example, when China banned initial coin offerings (ICOs) in 2017, the price of Bitcoin and other cryptocurrencies dropped significantly.
Adoption
The more people adopt a particular cryptocurrency; its price will be more stable. Conversely, a lack of adoption can lead to higher volatility. For example, if a new, untested cryptocurrency suddenly gains a large following, its price may skyrocket, but it may fall just as quickly if that interest wanes.
Market Manipulation
As said, crypto markets are not exactly regulated yet and this is making them vulnerable to manipulation. Meaning, in the case when a large holder of a particular cryptocurrency starts selling off their holdings, they have the power to make the price of the said currency to drop quickly.
Media Coverage
Media also plays a huge role in the shaping of the public perception of cryptocurrencies and directly affects market volatility. News articles or more commonly social media posts, when negative, can very quickly decrease the price of a cryptocurrency.
Network Upgrades
Finally, network upgrades or forks also affect the volatility of the crypto market. Let’s say, if the price of bitcoin rose significantly as we were approaching SegWit’s promotion since the investors speculated about its potential impact on the network.
Conclusively, the crypto market, with its own volatility, is a double-edged sword. On the one hand, it presents an opportunity for a quick profit. However, on the other, it can also lead to a great loss if you are not careful or calculated. Understanding the main factors of the crypto market volatility will help you make informed and therefore calculated trading decisions and not lose opportunities while minimizing the risk you may face. So, always remember to do your research, stay informed, and most importantly, never invest more than you can afford to lose. With just a little patience and the right strategy, nearly anyone can succeed in the volatile world of cryptocurrency trading.
