Factors affecting crypto volatility

Since cryptocurrencies were created to mimic real assets and currencies, the factors that cause movements in their demand and supplies are not different from those in any other business. If the demand for a particular cryptocurrency has increased, there will be an appreciation in its value. At the same time, if there is a fall in demand, the value of the crypto associated would naturally come down.

While https://unsplash.com/@gradeyacht0 is enough to explain price movements in any traditional financial market, in the world of crypto, this could happen because of global news, hacking of a project, or even because of the fear of missing out (FOMO)!

Still can’t quite point out what is causing market movements in the crypto world? Read on!

Volatility
At the beginning of the year, Bitcoin and several other cryptocurrencies reached their peak and most investors were happy with the gains they made as a result. However, the joy was short-lived as Bitcoin, the cryptocurrency with the largest market share, lost nearly 50% of its value. Though be certain that arming yourself with all the information about the factors that cause market swings is not enough to accurately predict the market movement all the time, you can still learn a lot about investing in big crypto projects.

Let’s look at four major components that cause market prices to move:

Fundamentals
The fundamentals of a crypto project can help you deduce if the cryptocurrency holds any value. It will assist you in establishing the crypto’s worth and its relevance in your portfolio. A project’s fundamentals essentially help you understand whether the cryptocurrency has been appropriately valued or if it's a result of cryptocurrency inflation. To carry out fundamental analysis for your trading decisions, you may want to learn all about an asset through its whitepaper.

History & Upgrades
Upgrades in the future or any events in the past can also affect a Bitcoin’s price. Say the cryptocurrency is expected to get upgraded with new features that will only make it more efficient and profitable, investors would want to put their money on it. It could typically cause the cryptocurrency’s price to rise. On the other hand, if there are doubts about the upgrades, investors may want to sell their assets on different exchanges which could lead to a great degree of fall in the cryptocurrency’s prices.

Competition

If you’re an amateur in cryptocurrency trading, it is important that you identify and observe your crypto’s competitors to understand to what extent would the other token get adopted. Most traders would choose to sell their assets when it becomes clear that their project does not stand a chance against the immediate competition.

Market events
You could have the best crypto fundamentals and supply at your disposal but its value would always be structured by the news and other market developments. These changes could happen in the blink of an eye and are absolutely beyond any trader’s control. As https://www.inventables.com/users/birchkrogsgaard1803 are fairly new, there is always a risk of financial bodies and governments issuing diktats that affect the price negatively.

Alternatively, if financial institutions and governments decide to look at a cryptocurrency as an accepted medium of exchange, its adoption into the mainstream could cause its price to rise.


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