Being one of the most unstable naturally occurring elements, Francium is the most volatile element in the periodic table. Applying the same analogy to the crypto markets, the volatile crypto prices beat everything else.
Volatility is one of the most significant features of crypto prices right now.
There are a lot of individuals that have tried to crack the code of fluctuating crypto prices. While there could be many reasons for it, we have laid a few ones for you to understand why the crypto prices fluctuate in the first place.
Why are the crypto prices fluctuating so much?
Irrespective of the fact that crypto has been around for a good amount of time now, it still is important to understand that it’s we’re the early adopters of crypto.
Being a market that is yet to reveal its implications and uses globally, the power of crypto is beyond measuring, which is millions of investors all over the world swear by it.
Because of this newness, high volatility emerges in the industry, which is a result of regular experimentation involving regular investing and divesting by investors.
Most times, new markets bring in more potential than an existing market. A single bitcoin which was priced at around $300 back in 2015 is now valued at more than $20,000.
Factors affecting the cryptocurrency prices
Regular investing and divesting are not the only reasons why crypto prices fluctuate regularly. In fact, there are a variety of factors into play that influence crypto prices on a daily basis.
Here are some of the factors.
1. The scarcity
Scarcity is a leading factor in the influence of crypto prices. It is one of those factors that directly influence the demand for a particular commodity.
This means that the value of an asset is supposed to increase if the demand for that particular commodity also increases over time.
In the crypto market, there are only a finite amount of coins in circulation. This means that the holders that own these coins have an asset that has a value associated with it.
A lot of markets even burn some part of their coin supply, which overall increases the value of the coin as there is a lesser coin supply in the markets. With just 21 million coins to mine overall, Bitcoin has already witnessed the mining of 19 million coins, which means that only 2 million coins are left to be mined.
However, this still creates a scarcity in the markets, because presently, there can only be a certain number of holders of Bitcoin. If the value of a single Bitcoin increases, these holders can witness a lot of increasing value for their holdings.
2. The inexplicable use cases
The utility of the coins is an important factor for the holders to associate a value to their holdings. If a coin doesn’t have a utility in our daily lives, it’s bound to lose its value over time.
Ethereum right now is a really popular blockchain technology that’s used for most transactions done only. Major platforms like Open Sea and Liquid Marketplace right now accept payments only in Ethereum, which makes it a strong use case for the people.
If we were to disassociate the use of Ethereum and adopt the regular payment methods, these currencies would lose their value over time.
The more people that execute the transactions, the more price would increase for these technologies. The more the volume of the currency, the more value it generates over time.
3. The ‘FOMO’ bandwagon
Let’s be honest. A lot of investors don’t really understand crypto as much as they presume, which is okay because of the hundreds of associated concepts with the industry.
A lot of times, emotional investing is a dominant factor in making investments.
With a particular narrative of “I want it too”, investors usually pump their money into the markets with the hope of deriving profits.
This particular factor of investing and divesting is one of the most important reasons why crypto prices fluctuate so much. Fear of missing out could be harmful to investors, especially in the long run when they don’t even understand the utility of the coin or the purpose of their investments.
4. Skipping the initial momentum
There are countless projects we can name that started with an initial high that they have never seen beyond that.
The crypto prices usually align themselves over time with the market values. These values are dependent on factors such as:
- Collaboration with credible companies
- Overall utility
- Milestones achieved on its whitepaper
The initial phase of an asset usually witnesses a significant high because of the prior asset allocation. However, if the volume of the coin decreases over time or major investors pull out anywhere, we witness a never-ending downward trend.
5. General market inflation
Being the last factor in the price fluctuation, the value of the currency significantly influences the value of the coins.
One of the most appealing features of cryptocurrencies is that they are more resistant to inflation than flat currencies.
If the price of the flat currency declines, the price of the crypto assets also goes up with respect to that currency.
A high inflation rate allows people to invest in digital money because money in its pure form in banks loses value. However, during times of high inflation, the value of the coins, primarily Bitcoin loses its value. That’s why we witness a general fluctuation in crypto prices from time to time.
The general order of things
Bitcoin, just like other digital currencies in the crypto marketplace are undergoing a lot of fluctuation at the moment.
However, at the same time, these currencies seem to hold more potential than most of the other investments we make.
As a regular investor, it’s important to adhere to the guidelines around your investments. That’s why you need to be on top of paying your crypto taxes as well.
Luckily, at KoinX, we make this process really easy for you. We allow you to calculate your crypto taxes in easy steps that take away the hassle of manual calculations away from you.