What Causes Cryptocurrency Volatility?

Several factors influence how the cryptocurrency market moves, and while they can be unpredictable at times, we can still gain a good knowledge or prediction of how things function.

The world of cryptocurrency is seeing unprecedented volatility, so why not explore what drives these values up, down, left, and right? Several factors influence how the crypto market moves, and while these aspects can be unpredictable at times, we can still obtain a fair understanding or forecast of how things work.

1. Supply & Demand

This is most likely the most basic and widespread concept of value. It is applicable to any physical or digital product, including traditional stock markets. If demand grows faster than supply, the price rises; if supply grows faster than demand, the price falls. It is a rather straightforward equation. So, how does that operate in the crypto world?

The supply of cryptocurrency is a recognized factor; Bitcoin, for example, has a predetermined maximum supply, whilst others, such as Ethereum, have no supply cap. Other mechanisms in crypto that are novel to the world of traditional stock markets are “burn” mechanisms, in which tokens are destroyed to reduce and limit the quantity of that particular coin.

When a project achieves popularity or adoption, demand rises, and the price of the coin rises in response. For example, when institutional investors adopted Bitcoin, the price surged. Others, such as Ethereum, benefit from price increases by putting newer DeFi projects on the Ethereum blockchain, resulting in increased acceptance and a price increase.

2. Crypto Exchanges Availability

This factor is quite obvious; major cryptocurrency exchanges like Coinbase and Binance list the most popular and sought crypto coins. When these coins are listed, the price normally rises since more individuals can buy them. Smaller tokens may be limited in availability on crypto exchanges, making it more difficult for consumers to invest for larger transactions to go through. 

However, once it gets listed on a major crypto exchange, more people will be able to invest in it, increasing demand and, ultimately, driving up the price.

3. Value Provided

This is determined more by your ability to predict future market needs and desires, as well as your comprehension of the future of technology and crypto. That being said, if you honestly believe that a new coin or project has the potential to address serious problems or bring significant value to the world, and you have thoroughly examined that possibility, then go ahead and invest in it. It all relies on current trends and problems.

4. Social Activity

Let’s not fool ourselves here. We just cannot ignore the influence of some big figures, companies, and individuals on the market. People like Elon Musk have the ability to radically change the cryptocurrency market, as we have witnessed numerous times.

Tesla, Mastercard, Twitch, Microsoft, and other large firms are embracing cryptocurrency. These elements are difficult to predict since you never know when someone like Elon Musk would tweet something out of the blue.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Patrick

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