Violent price fluctuations in Bitcoin and other top cryptocurrencies comes with the territory, but it leaves us wondering what causes this financial bloodbath. There isn’t extremely”really a measurable volatility index pegged to Bitcoin since it has such a brief lifespan in comparison to traditional markets. This article will attempt to highlight a few focal points that contribute to the market’s volatility.
Uncertainty in a New Market
Bitcoin and other cryptocurrencies are still in an experimental stage since it is so new and Different in what way?different. Market experts may only associate trends with FOREX and stock market, which still move at a slower pace than Bitcoin.
To make sense of everything, economic theorems that apply to the securities market tends to be applied to cryptocurrencies. This is why similar terminology is used when analyzing Bitcoin, such as bull/bear market, bull/bear traps, shorts & longs, FUD, market capitalization, and others.
Established coins, like Bitcoin or Ethereum, usually see the closest thing that there is to stability. Especially when a bulk of altcoins tend to fail, the wealth in the market usually re-consolidates into Bitcoin. Having said that, even Bitcoin has sudden crashes that have “crypto experts” scratching their heads.
It is Nearly Impossible to Regulate
Some level of regulation can and does occur at the level of local exchanges or startups. This is typically the part of the trading process where fiat currency is exchanged for currencies shares in a new token. The extent to which governments may regulate these companies is still unclear since most authorities have such a poor grasp of the technology behind cryptocoin
The initial coin offering (ICO) is the crypto answer to the stock market’s initial public offering (IPO). The unfortunate part about it is that an ICO may be initiated without a legal paper trail or a legitimate business plan.
In fact, an ICO may be created by anyone with basic knowledge of forking cryptocurrencies or creating tokens at little-to-no cost. This leads to most projects being outright scams that either runs away with investors money or the company sells their overvalued tokens until it crashes.
Since the market is like the Wild West, new currencies peak and crash in a very short time. With many people losing their savings in the crypto bubble in late 2017 & early 2018, it is no surprise why many have denounced cryptocurrencies.
It’s a Target For Bad Press
The investors of Bitcoin are extremely sensitive to the news, and mainstream outlets capitalize on it. If a celebrity, politician, or representatives of a regulatory agency disparages the crypto market, the lowest hanging fruit will panic sell.
The insolvency of Mt. Gox is likely the worst bad press that Bitcoin had ever received, which still haunts investors to this day. The lingering feeling of large exchanges or investment platforms will lose everyone’s funds is now seen as a distinct possibility.
Whether or not the press is intentionally manipulating the market with doom and gloom, it is certain that headlines have a significant effect. Without giving away names, wealthy early adopters of cryptocurrencies have even paid for press releases and blog posts to the way the market to their own advantage
The cryptocurrency market is still one big experiment that merges technology, human nature, and the fast-paced financial tech market. Investing into it at this point may mean big gains in the future or it may be a disappointment. What we can hope for is that cryptocurrencies will be used to improve our quality of life and solve problems that plague current financial institutions.