Big Fluctuation In Crypto Market- Kumar Gaurav

Cryptocurrencies and bitcoin have recently emerged as hot topics in the financial industry. A cryptocurrency is a digital money that is secured by cryptography and with this security feature, a cryptocurrency is difficult to forge. Also, as it’s not issued and regulated by any central authority, it makes it theoretically immune to state intervention as of now.

Despite the fact that cryptocurrency was fostered in 2009, it was a virtually obscure entity that was not widely traded and owned until 2017. Its value soared in 2017, almost pushing it into bubble territory. A major crash soon followed, with prices falling by approximately 90% in the following year, determing its volatility. Bitcoin, for instance, is more volatile than currencies with stringent capital controls, which are common in EM countries with hyperinflation. Bitcoin volatility surpasses that of many emerging market currencies.

There are many explanations for why the price history of cryptocurrency has been so volatile over the years. Assessing the factors in detail can help one determine whether to invest in it, trade it, or keep an eye on its developments. Here is Why there is a big fluctuation in the Crypto market:

Supply and Demand

Bitcoin’s value, like most commodities, assets, and investments, is heavily influenced by supply and demand. As a rapidly embraced asset by investors and traders, price movement speculation plays an essential role in Bitcoin’s value at any given time. The cryptocurrency is designed to be limited to 21 million coins; as the circulating supply approaches this limit, prices are due to rise. For example, in the year 2021, there was significant upheaval in cryptocurrency. Bitcoin was trading at around $20,000 (roughly Rs. 14.85 lakh) in December 2020, and it had attained an all-time boost of $65,000 (roughly Rs. 48.27 lakh) by April. Then, in May, it plummeted, and it remained under $30,000 throughout June (roughly Rs. 22.28 lakh).

Media and Influencers

A growing body of empirical research has looked at the interactions between media, social media, and cryptocurrency fluctuations. TV debates, opinion articles, and social media posts have a significant influence on shareholders, who invest and sell their crypto assets based on the popular opinion created by them. Also, many influencers, opinionated industry titans, and well-known cryptocurrency supporters raise investor concerns, causing price fluctuations.

Sentimental Factor

The market, of cryptocurrencies unlike the stock market, is not regarded as requiring expertise. As a result, the majority of shareholders and investors are part-time. Most of them come with the expectation of making quick money, but when that does not occur, they lose interest and end up selling their assets. Volatility, therefore, is also caused by this frequent involvement and withdrawal of shares in the crypto market.

It’s still a developing Market

The blockchain or other relevant technologies that these cryptocurrencies rely on are still in the development stage. Also, despite extensive media coverage of cryptocurrencies over the years, the cryptocurrency industry remains comparative small when set side by side with fiat currencies and the gold market. Even at its height, the bitcoin market was worth approximately $2 trillion. Moreover, when compared to the corresponding value of the gold market ($7.9 trillion) and the expected value of the US stock market ($28 trillion), Crypto currencies still has a long road ahead.

Russia-Ukraine war

The ongoing Russia-Ukraine conflict has had an impact on the crypto currency market, with the global crypto current valuation falling to as low as $1.57 trillion in the final week of February. Given the circumstances, both buy and sell of crypto are higher than usual in terms of volume. Top analysts suspected that Russia would use crypto currency to mitigate the impact of sanctions by avoiding control points at the start of the war. Russian may also strike deals with anyone worldwide who works with them using digital currencies, causing further disruptions in crypto market.

Cryto Currency is still in Infancy

The underlying cause for volatility in crypto currencies, is however its originality and novelty. Nearly 15 million Indian investors are said to be investing in cryptocurrencies, the value of which fluctuates. The government’s lack of a proper crypto policy, guidelines and absence of a controlling agency is allegedly causing confusion and misinterpretation of the market, as well as putting many investors at risk. As all new ideas take time to establish and become acknowledged, cryptocurrencies are no exception. Due to the speculation, many shareholders and investors are still discovering its potential and market value.

Crypto is frequently referred to as ‘new gold,’ and it is identified in a manner similar to gold capital. Its disruptive ability has even compelled major banks to monitor the development of cryptocurrencies, as cryptocurrencies, in essence, challenge banks’ existence as financial intermediaries. The volatility of the cryptocurrency market is definitely a great concern to market participants and policymakers, but at the same time, the risk can be rewarded with high returns. The ability to accurately forecast volatility and predict its spillover effects will have a game-changing impact on crypto adoption.

Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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