With a point spread, you’re at least able to forecast a specific game’s outcome. But when it comes to the cryptocurrency market, the price values of crypto assets change instantly due to various forces that drive and affect the market.
Aside from other factors that traders need to be aware of, the volatile nature of the crypto market remains a key point to always be aware of, irrespective of how well crypto has been performing over the years.
Understanding Crypto Value
When cryptocurrencies started trending years ago, many investors were drawn to the market mainly because of the circulating testimonies regarding the potential profits that many investors were making.
This caused a sudden rush toward the crypto market, with many investors flocking to get a share of the pie. While the market may have accepted and welcomed all of these interested investors, things began to take a different direction when it suddenly crashed, and the wealth of many investors began to deplete.
Generally speaking, Bitcoin is the world’s largest cryptocurrency. By attempting to understand the magnitude of the size of this crash, you’d have to picture the Bitcoin value dropping to a low of $31,000, meaning losses of over 50% since it had reached its all-time high of $64,000. Even though the market did recover since this drop, the volatile nature of the crypto market continues to this day.
Why Cryptocurrency Is Volatile
Many investors are drawn to the crypto market because of the great opportunity to generate massive profits. When the market is this volatile, experienced traders with the necessary expertise and skills can take advantage of any direction that the market is taking and generate these desired profits irrespective of whether the crypto’s market price is rising or falling.
For instance, when you look at Bitcoin, its value has increased widely over the years. Within a certain year, Bitcoin can trade for under $30,000 in January, but it can double in value between February and April.
Before April even runs its course, it can crash in value to where it was at the start of the year and only start taking recovery in June. And then, by the time August arrives, it could have surpassed $50,000 in value and, again, crash right before that threshold. This happens with most cryptocurrencies.
Let’s look at other leading factors that play a significant role in driving crypto price movements on the market.
Think of the number of people who use crypto coins, and then think of what factors influence the price of these coins. When there’s an increase in the number of people spending these coins to purchase goods and services instead of holding them, the price of the crypto will go up and increase in value.
As many industries are beginning to see a rise in crypto use across various platforms, this means that more businesses, organizations, and merchants are beginning to warm up to the idea of using cryptocurrencies as a form of payment, and this means that coins are likely to grow from this point.
When we talk about scarcity, we’re referring to the finite mechanism used in cryptocurrency. It’s pre-determined that the total number of Bitcoins allowed to be mined is 21 million within the protocol.
Therefore, as more and more people start joining the industry, more Bitcoin will be circulating. Because a fixed amount of it has already been set to be mined, there is bound to be scarcity for the coin resulting in a skyrocketing value.
With some coins, the burning mechanism will be used, and this means destroying a certain portion of the coins that are already in supply, just so the value of the coin will rise.
In some cases, crypto accounts that are holding large amounts of coins in them start selling these coins, and this causes a crash in the value of that coin. These accounts are referred to as Whales. This is because they have a large holding and are able to influence the market significantly.