Cryptocurrencies, since the early days of Bitcoin’s first one, have been volatile. The prices can swing on daily levels, making them both dangerous and appealing to investors. The danger is there, but a chance for a big paycheck always prevails. That’s where the strength of crypto lies. The risk is there, but anyone who gets tangled with crypto accepts it, knowing that volatility is a means to an end. Today, despite volatility, digital currencies such as Bitcoin are all part of financial markets. They even help in making it stable. Let’s see how this came to be.
The Next Wave in Digital Currency Innovation
Digital currencies came our way back in 2009 on the back of the now-famous Bitcoin. What made it so revolutionary was that it landed on a digital ledger where all transactions were recorded regardless of the network and computer, making it the first decentralized cryptocurrency. Because of that, BTC and the crypto that followed gained a unique structure, making them secure, transparent, and very independent from traditional banking systems.
What Makes Crypto’s Price so Volatile?
Let’s be honest here – there are plenty of factors, some of which we’re probably unaware of as onlookers. But the primary ones are quite well-known and easy to understand. Check them out:
Supply & Demand
Let’s use BTC as the best example here. Its supply is limited, and it’s set at 21 million coins. Due to this trait, BTC is a deflationary asset. The demand for this crypto often fluctuates, creating the famous price swings that have made it so popular. As we already said, the supply of BTC is limited to 21 million coins. To ensure that there is not a coin anymore, we have a mechanism called halving to ensure it. Every four years, the reward for mining one block of BTC is halved. Before, you had a value of 50 BTC per block. Today, this number has been halved a few times, and it will be halved in the future as we’re getting closer to the famed 21 million. It is estimated that as of now, 19.6 million is mined and is circulating the market, while the coveted number of 21 million will not be reached until 2140.
Market Feelings
We live in quite modern times where media networks, news outlets, and social media influencers can influence the price of assets such as cryptocurrencies. A positive voice can create hype; hype creates demand, the demand increases the price, and so on.
The negative news always creates panic; the assets get sold, and their prices drop. All of this adds oil to the fire of crypto volatility. Just read about the relationship between Elon Musk and Dogecoin.
Regulatory Impact
In the early days of crypto, there was no regulation. The opinions of whether digital currencies should be or shouldn’t be regulated are divided. Also, not everyone is sure they can be regulated the right way, nor who should be in charge of doing it. Some people dealing with crypto love the situation as it is, while others support the regularity of moves happening in the EU, Canada, USA, and some other parts of the world.
Broad Application
The more ways people find to use BTC and other crypto in everyday life, the more its value grows. These days, crypto has even found its way to online casinos. Using digital currencies as a means of gambling broadened the horizons in this domain for both players and casinos. Due to ever-present volatility, entering the casinos with little crypto and exiting it with a bit more can make the whole difference in your budget. If you lose and the price drops, you’d be losing less. But, if you win and the price skyrockets, your winnings could be tenfold. With the amount of crypto circulating in online casinos, they now play a big role in the volatility and value of digital currencies. If you are interested in learning how they work just read a little bit at Bitcoin Casino’s blog.
Analyzing Market Dynamics
The best way to analyze the market is to use the data available. For example, BTC is best followed through the BVIX (Bitcoin Volatility Index). It is used to measure the volatility of this crypto based on the data that the market sends. Many investors are using it as a tool in making their trading decisions. It is important to have this type of insight nearby to lessen the risks. If you want to enter the crypto market on a serious note, you need to find more of these tools depending on which crypto you plan to associate yourself with.
Market Dynamics Through the Lens of Investor Behavior
Cryptocurrencies on the market are influenced by decisions made by either institutional investors and by each one. None of them has the same behavior on the market, thus influencing crypto and its price in unpredictable ways. In recent years, as the popularity of crypto grew, many investment platforms came our way. Trading BTC and other crypto become more accessible than ever. With more investors flocking to explore the world of digital currencies they made the market more liquid, and in the process failed to exclude volatility. Truth be told, they made it even more volatile, not taking any of the fins initially associated with investing in cryptocurrencies.
Challenges in Predicting Crypto Volatility
Even fifteen years since the first crypto was created they’re still a big enigma. The rapid shifts in value that are not going away make them detached from other financial markets. These days, investors and analysts are trying to reach the end of it by applying different tools and sophisticated approaches to the problem in an attempt to predict the market movement as far as digital currencies are concerned. Yet, as of now, no one can be too precise in predicting the movement of the crypto market.
The main reason why no big progress was made concerning crypto volatility is the fact that we’re talking about a young market. It’s only a decade and a half old. Let’s take a look at stocks, shares, and similar commodities. Their markets are decades old, some might even be a century or older. So, you understand that there is not enough history of the asset to make precise predictions or even to plan the volatility for the foreseeable future.
When you add the fact that BTC and similar crypto are decentralized assets, matters get even more complicated. They don’t have a body to govern them, they have no physical presence and are often influenced by the moves individuals from all corners of the globe make. This is why it is so hard to predict anything about digital currency if you’re looking to do so long-term. If you look at the way digital currencies are now, their volatility is not going to change soon. At the moment, you could even claim that it is their biggest trait and that it’s the one that attracts so many investors. With the number of both individual and institutional investors growing, we don’t see how the situation is going to change any day now.
If you plan to invest in BTC or similar crypto, remember what they are and learn how they work. Remember, BTC has a limited and predetermined number of coins set at 21 million. With limited supply, it is expected that its value will always be high and that its volatility will be lower compared to some other crypto. Also, the new coins, the ones that survive, are much more volatile compared to their older counterparts. All of this needs to be taken into account if you’re eager to make digital currencies a part of your investment portfolio.
