Cryptocurrency Volatility and 8 Tips to Understand It

Cryptocurrency Volatility and 8 Tips to Understand It

Cryptocurrency volatility is a key issue in adopting a decade old phenomenon like Bitcoin. Old-timers in crypto investment mostly accepted it to be less of a hassle. It’s extremely confusing to young adopters whether the value of the digital currencies come from a base of reality or fiction. Above all, what determines the price of bitcoin?

Here are 8 important factors that contribute its instability.

News Headlines Contribute to the Cryptocurrency Volatility

1.Certain headlines, in major outlets, can be accounted for the cryptocurrency volatility. The adopters of crypto currency often react to the news they receive as the source of trade signals. Having a major role in the panic sales, negative headlines is arguably the boldest factor in sudden volatility of the digital currencies. A good example, the way Bitcoin’s value dropped for $3000 last year. It was all due to the news of Chinese ban for bitcoin mining, breaking out.

The importance of Chinese miners in mining bitcoin. Meanwhile, bitcoin friendly investors view this, as a step toward market maturity, which drives the value of Bitcoin versus US Dollar back up in short to long term.

Supply, Demand and the Adoption Rate

2.Unlike the US Dollar and other fiat currencies, Bitcoin lacks the backing of governmental organizations or financial institutes. However, The supply limit implemented in bitcoin’s core design closes its property gaps to become similar to gold, because it has a 21 million BTC limit.
In other words, the more adoption growth results in more demand for the crowned cryptocurrency. More demand means less supply which translates into higher value of Bitcoin.

Lack of regulatory oversight

3. The crypto mania has yet its foot out of the regulatory borders and the governments are generally skeptical as to which approaches are helpful in regulating the crypto-currencies or crypto-assets. The issues are commonly considered due to anonymous nature of bitcoin transactions, which makes it untraceable to the banking systems.

The banning or legalization of cryptocurrency or mining processes has volatility results starting in its countries of origin.

Ambiguity of Bitcoin’s Future Value

4. Bitcoin’s is intrinsic by nature, which means it is being diversely interpreted by individuals. Overall, the cryptocurrency has a store of value and method of value transfer.
As the result, the current state of bitcoin has made it an ambiguous store of value. Since these two drivers of the current spot price of Bitcoin varies against the dollar, we see that Bitcoin’s value can swing. It’s ambiguous because it is subject to alteration of perceptional factors. It changes based on news headlines the more we observe its relation to fiat currencies.

Losses In Extreme Volumes of Bitcoin’s Future Value

5. while the losses and the headlines about them evokes tremendous cryptocurrency volatility. It’s the panic behind the losses that has hit the market in the past few years. The young adopter’s effort to protect their assets is common by an act of transferring their crypto back to fiat, which its psychological tensions get widespread, resulting in falling prices in exchange rates.

Security Breaches Cause Cryptocurrency Volatility

6. Today online exchanges hold a considerable amount of crypto-assets. The good old fashion databases are not fully immune to attackers, also every once in a while there seems to be a vulnerabilities which results in crypto exchanges security walls being breached. These massive losses tend to damage the reputations, as the result adding to price valuation of crypto-currencies.

Thin Order Book makes Cryptocurrency Volatility

7. The investors of crypto realm are constantly advised not to hold their assets in online exchanges, because the security issues and hacking vulnerabilities are real. This factor leaves the supply to be mostly kept on hardware wallets. It’s not difficult to imagine how a large order will populate the ques on the order books. Similarly known as “slippage”. This occurrence is well-common, therefore it happens almost daily. An over-exaggerated example of it could be found in GDAX Ether flash crash. There is a capacity for big volume traders to change market course, as a result, move it in either direction. When employing these tactics the market usually witnesses an uplift.

Adoption of Short/Long Term Investment

8.The adopter’s expectations also plays a role in the market volatility of crypto currencies. Likewise, if you want to invest in something and expect a return for it way ahead in your retirement, then you won’t be concerned about its daily value fluctuations. The crypto assets cannot be bought in retirement accounts, therefore it’s left out by many investors. This leaves us with individuals that are fine with the technology hurdle of working with wallets and web-based exchanges. The group of people who are excited with the green and red flow of the charts and are not the type with discipline to buy and hold for the long run. These type of fellow dreamers are exactly the ones that are contributing to the panic sells or FOMO buys.

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