4 Reasons why cryptocurrencies are volatile in nature
There is no doubt the crypto market has been volatile since the beginning. However, the last couple of years has been mainly a roller coaster ride for every investor around the globe. Many made millions during the bullish phase and yet several lost small and large investments in the bear market or due to sudden downturns. This was the result for every crypto coin, including thetop cryptocurrencies in India such as Bitcoin, Ethereum, Litecoin, Dogecoin and Shiba Inu, etc.
Still, the crypto world is rising and is expected to grow in the upcoming future. To step into it correctly or continue to make sound decisions with higher profits, one should understand the factors behind its volatility. There can be numerous reasons for such nature. But, some are the most potential reasons to cause these market fluctuations. In this write-up, you will get to know why cryptocurrencies are volatile in the first place.
Cryptocurrency is still referred to as an emerging market. It is gaining rapid popularity, priorities, and fueling quick disenchantments among traders. However, compared to the traditional businesses like gold and their market capitalization, this world is still minuscule. This means that small investors or groups of people holding large shares can influence and regulate the market. The name and fame of the crypto world are reaching greater heights. Even if they only sell or buy bitcoin, it would be enough to crash the whole market.
Lack of a controlling agency
Unlike other assets such as gold, fiat currency and equity, digital coins are freely traded without any intervention from the government or any other political influence. Furthermore, they do not belong to a single entity which makes it decentralized and more secure. In India, there are no specific regulations of cryptocurrencies till now. The anonymity is what attracts investors and makes them skeptical. Also, no regulatory framework is the prime reason to beat inflation.
Limited supply and increased demand
Another reason why the crypto market is highly volatile is due to the limited supply of digital coins. Cryptocurrencies do not work or have the same value as regular or fiat currencies. Their supply is also limited. For instance, bitcoin has a total cap of 21 million and Litecoin for about 84 million is asserted to be introduced in the market. This factor influences the nature of cryptocurrencies and makes them volatile and unpredictable. Furthermore, given the limited supply, some enterprises or investors have significant holdings and impact on the rise and fall of digital assets.
One of the most reasonable factors which play a great role in keeping the crypto market ahead of others is the adaptation of advanced technology. The blockchain and other technical aspects on which cryptocurrencies work are still in the evolving stages. Plus, it’s been a decade since the bitcoin idea was proposed and we noticed a new form of trading. The advancing technology makes the crypto coins structure and functionality quite dynamic and unpredictable for a person to grasp smoothly.
Furthermore, sentimental factors, price discovery stage, fragile investors and purely digitized are some prevailing reasons for the volatile nature of cryptocurrencies. However, with higher risk comes higher returns. In that sense, volatility is not your enemy as returns can compensate for losses. But, to achieve it, you have to be a pro in crypto trading and an intelligent candidate to make the right decisions. So, make sure to read, explore and gather as much knowledge, research and articles as you can. In addition, opt for reliable or best crypto exchangesinIndia like WazirX. These points will collectively help gain better insights into the market positioning of favorable cryptos in recent times.