In 2017, Bitcoin, the first cryptocurrency, rose dramatically from $700 to $20,000!
The fact is that so many businesses are now adopting cryptocurrencies as payment methods. It is not surprising because this digital transformation demands it. If you don’t want to be left behind in this transformation, get affordable crypto exchange development services from a leading blockchain company.
However, the market quickly became too unstable once it reached critical points.
Have you ever wondered why these cryptos are highly volatile?
Let’s dive deeper into the blog and comprehend this.
A Glimpse Of Volatility
Volatility is a term used to indicate how much an asset's price changes over time. When a coin’s price swings sharply up or down daily, it is said to be volatile.
Reasons For Volatility
Cryptocurrencies are highly volatile due for various reasons.
New technologies always take time to be adopted by people. Since cryptos are new to the market and most people are yet to use them daily, their values are still fueled by hype and speculation. Therefore, there is a possibility of both profit and loss. But, if it is profitable, it will be at its peak.
Liquidity - A Hotbed for Volatility
"Liquidity" describes how simple it is to acquire or sell an asset on the open market. The cryptocurrency market has a limited level of liquidity, encouraging wild price volatility. Since a single order may shift the markets, soft liquidity markets are vulnerable to abrupt and violent price swings.
Due to the complexity and difficulty of regulating open-source and decentralized technologies, the cryptocurrency market is uncontrolled. Given that the bitcoin market is swayed by news and feelings, it will cause panic and volatility. Also, since bad actors influence the markets, the price can range from a planned collective pump-and-dump plot to trade volume manipulation.
Speculation is the sole factor pushing the prices of cryptocurrencies in an unregulated, young market. It is speculative to estimate the significance of any cryptocurrency using conventional fundamental analysis. Any asset's worth depends on how useful and widely used. Therefore, placing a speculative wager on a coin's potential use cases, acceptance, and traction is the best method to determine its worth.
Risk-takers are those who invest in the crypto market. Nearly 60% of Bitcoin consumers are in the 15–34 age range. Hence, it proves that GenZs are more attractive to high-risk assets like cryptocurrencies. Youngbloods are always ready to take risks. But, in this case, since it involves money and also the market is highly volatile, why don't you prefer a trading bot?
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The cryptocurrency market is highly unpredictable and a double-edged sword; it may produce enormous gains, but you also run a great chance of losing a substantial sum of money. So, any investor or trader should have a solid understanding of volatility before investing.