5 reasons why the cryptocurrency market fluctuates –

Cryptocurrencies have been around for a while and they are here to stay as the market is constantly changing. But although it has increased, the value of cryptocurrency sometimes fluctuates, and the factors are unexpected and uncontrollable. Of course, this is not a reason to stop investing, but it can be a real challenge for beginners and even advanced investors. So, in the following paragraphs, we will see why the market is not constant and what are the influences on cryptocurrencies.

Emerging market

As it grows, an emerging market becomes more engaged with the global market, which has happened to cryptocurrencies. Since 2008, when the first virtual coin (Bitcoin) was introduced to the market, digital communities have grown and grown, and now you can find around 1500 cryptocurrencies. This influenced the price of Bitcoin and Ethereum (the second most used coin) and gave people new opportunities to create and have their own currencies.

Cryptocurrencies are growing due to innovation and the desire for constant improvement. Even though Bitcoin provided enough coins for people, Ethereum was created with the intention of being more than that – a place to keep your digital money, make global payments, and build and use apps.

Moreover, with the rise of NFTs and Dapps, some cryptocurrencies also gained popularity because you could only perform such transactions on certain ones (like Ethereum). Therefore, if in 2010 only investors were interested in this coin, now gamers, writers, musicians and even businesses are using Ethereum to share and sell their artwork, products or services. Soon, as the market evolves, a new use for coins will be discovered, increasing the popularity of cryptocurrencies.

Supply and demand

The supply and demand rule is an economic policy that can be applied to almost anything, from fiat currency (currencies issued by the government) to virtual currencies. For example, if there is excess supply and demand is low, the price will decrease, and vice versa.

But what is interesting with cryptocurrencies is that they do not have the same supply of coins. For example, Bitcoin is limited to around 21 million coins, with the current supply being 19.09 million. This means that it is more difficult to mine, as fewer coins will be available to the general public. On the other hand, Ethereum has an unlimited supply and 121.5 coins mined currently, and the blockchain is still being updated. With the next version of Ethereum, you are supposed to mine easier, which is an optimistic view for all investors.

On the demand side, cryptocurrencies have become popular because they are easy to transfer and not issued by any bank or financial institution, which has attracted more people’s interest, thus increasing the demand. Other reasons why demand has increased are security, low fees, and the choice of many cryptocurrencies.

Trading time

Perhaps you have heard that there are fewer transactions in the market on weekends. This is because the same trade size can cause prices to fluctuate much more when volume is low. It is possible that with the banks closed on weekends, investors may not be able to add money to their accounts, which is why there are fewer transactions.

The type of mining you use is also important because there are a few more or less efficient and energy-intensive mining methods. For example, CPU mining (which uses a computer’s central processing unit) is not too good for Bitcoin because it does not have enough power, but you can choose to mine in groups (called pools). mining) to increase your chances of mining new blocks.

This is why some cryptocurrencies need to up their game and make improvements to allow more people to mine and not get discouraged by the complexity of the process. Ethereum, for example, will change its proof of work to proof of stake which will speed up transactions. If you want to check the Ethereum price, consider these factors when interpreting its fluctuations.

social media

Media coverage plays a huge role in driving demand for cryptocurrencies. A few years ago Bitcoin was all you heard about on the internet. Tech influencers were talking about its benefits and why it would become the future of transactions, celebrities were talking about it on Twitter, and overall the media was packed with information, but not simple enough for everyone to understand.

Let’s also not forget how Elon Musk’s tweet about Dogecoin boosted the currency’s popularity by 8% in a matter of hours. The funny thing about this currency is that it was created after a meme, and you can earn free coins by doing basic tasks online (watching an ad or taking a survey).

Generally, social media is responsible for fluctuations and can also affect demand because, as we will discuss later, people’s opinions on the stability of the coin can be easily swayed by someone else. While social platforms can help stakeholders make better decisions and stay informed, they don’t always provide an objective view of the market.

Sentiments of investors and users

Investments are primarily based on trust. If social media shows that a cryptocurrency is in good shape or if others are buying coins and encouraging people to invest, of course, the market price will be influenced, which will interest more people. Additionally, some articles found that the prices of smaller cryptocurrencies would be affected if the major ones (Bitcoin, Ethereum) fluctuated.

The term for this phenomenon is called market sentiment, which refers to the overall attitude of investors towards a certain financial market (in this case, cryptocurrencies). For example, rising prices indicate bullish sentiments in the market, while falling prices indicate bearish movement.

Some components of the volatility index can measure this indicator, and it is primarily used by investors who profit from finding overvalued or undervalued stocks in the market.

Final Thoughts

The cryptocurrency market is not designed for stability, as many factors influence the prices and popularity of a cryptocurrency. The system works similar to the traditional financial system. Yet, no banks or other institutions are allowed, which benefits investors, but it can also make the mining process more difficult.

Disclaimer

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