For many years, cryptocurrencies have been one of the most turbulent and shifting topics in the world, with experts trying to understand precisely what cryptocurrency is.
Only a few brave investors have sought to unravel the enigmas of cryptocurrency price fluctuations and the underlying reasons. It is still in its early stages; therefore, a single statement response to the issue of what drives the price of cryptocurrencies is – because it is still in its early stages.
Cryptocurrencies are still in their infancy as a market that has yet to discover its own set of rational use cases. Aside from its infancy, several additional reasons influence the constantly fluctuating value of cryptocurrencies in the market, as discussed more below.
1. Markets in Transition
Cryptocurrency is still a developing sector, garnering increasing appeal and causing investors to become disillusioned with it in short term.
Although there has been a lot of media coverage, crypto market is still insignificant compared to regular currencies or even gold. This implies that even tiny factors – such as a group of individuals who possess significant quantities of cryptocurrency – may impact the market.
Even if they merely sold Bitcoins, it would be sufficient to bring the whole market to a halt. Most of us have to deal with the ups and downs of the market daily.
Large, well-heeled investors may cause booms and busts. In addition to causing chaos in the cryptocurrency market, such individuals may also generate turmoil in the stock market.
2. Frail Investors
The volatility of the crypto market and the price of cryptos are frequently like a roller coaster ride. Expertise is not required in this market, unlike in the stock or real estate markets.
As a result, most of the investors are part-time workers. In the beginning, they expect to make a lot of money quickly, but when that doesn’t happen, they tend to give up. As a result of this constant engagement and withdrawal, the crypto market fluctuates.
If you’re unsure about your cryptocurrency investment, you’re not alone in selling it at a reduced price. Because of the market’s tiny size, this behavior is readily explained.
Because there are so few players in the market, it continues expanding and contracting at an erratic pace.
3. Creating New Technologies
Who is driving the massive growth of cryptocurrencies? Millions of people participate in the production of value via cryptocurrency.
The user (buyer), the developer (miner), and the promoter are the three fundamental sorts of participants identified by economic theory (investor). All three of these elements must be present for a market to function correctly.
Although the underlying technology is changing, blockchain’s advantages are becoming more apparent. Soon, the general public will be familiar with blockchain in the same way they are with other forms of technology. If a smart contract isn’t verified in the period predicted, the value of cryptocurrencies is put under pressure.
4. A Purely Digital Asset
Digital assets, such as cryptocurrencies, do not have a physical form and are not backed by any government. More than 700 cryptocurrencies now exist. Because of the soaring demand, this number is quickly increasing. Price rises when there are more buyers than suppliers because demand surpasses supply. Sellers are in a perfect position in this scenario.
Excess supply causes prices to decline when there are more sellers than customers. Buyers who can get their hands on their merchandise at a lesser price will be happy to hear this! However, repeated slumps and drops have lately overshadowed the remarkable rise in the value of many digital assets.
Consequently, many new investors have begun to lose confidence in these currencies or seek to know the ‘reasons’ for these changes.