Why is Cryptocurrency so Volatile

When Bitcoin and other cryptocurrencies first started to trade in the market, the price was very low and it rarely changed. It was stable and static. Some even called crypto “boring.” Nonetheless, when 2017 arrived, the price of cryptocurrencies around the world started to surge, especially that of bitcoin. Hovering at around $15,000 by the end of the year, when 2018 came around, there was much hype around crypto; people were excited and wanted to buy more. However, this hype was quickly toned down, as people started to sell their online holdings of this coin. In the past, people started buying because their belief in cryptocurrency was only based on their emotions and not based on any value that crypto proposed. Bitcoin became like a virus in 2017. Everyone wanted to get on this train of money. When people could not get into the crypto market they had FOMO; companies were pivoting to bitcoin with no facts as to why they were doing so. When this became known, the FOMO turned into a fear – a feeling of losing all your investments, causing people to sell, thus causing a rapid plunge of this market. 

From 2018 to the start of the pandemic, the price of some cryptocurrencies were stable, almost too stable. At the start of the pandemic, the price of bitcoin was around $7,300, and today it is touching $56,000 – an impressive 700% rise. Other cryptocurrencies such as Ethereum showed similar or even greater surges. The massive change during this period clearly showed the volatility and explosiveness that this market has experienced and can continue to experience in the future. As the pandemic went on, Bitcoin, Ethereum, DogeCoin, and others continued to increase in value. Since then, companies such as Starbucks have embraced cryptocurrencies as payment options, and more people have started to understand blockchain (a system in which untraceable transactions made in Bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network) is truly about. On the other hand, other companies have stopped accepting cryptocurrencies as payment methods, including the likes of Tesla. Likewise, the Chinese government has made it hard and tiring to exchange crypto and has regulated it within their country. This has made the last few months a wild ride of ups and downs. But what exactly is happening?

Moises Jamri, a 11th Grade Student says, “Crypto is truly the most rapidly changing market, I mean one day bitcoin can be at 30,000 and then the next it goes up 50%, it is incredible!” The cryptocurrency market has been volatile from its beginning, but the last few months have been quite the trip for investors. There are a few elements that determine the trajectory of this market. 

Although cryptocurrency has been around for a while, it is still an emerging market, gaining popularity as the days go by. Despite all this hype, the crypto market is relatively small when compared to others such as silver or other traditional currencies like the dollar. This means that if a few groups of friends have a big holding of crypto currencies, the market will be affected. Even if they were to sell or buy a large holding of Ethereum, the whole market would be negatively or positively affected, proving the miniscule size of this market compared to others. Additionally, the cryptocurrency market thrives on speculation, meaning that it is an investment with a very high chance of gain, but also a high risk of loss. The bitcoin’s value basically reflects speculation on its future value. This is the same with all depositary markets. Investors bet that prices are either going to go up or down in order to make profits, making this a very risky investment. The speculation aspect of crypto makes the coin go up or down extremely quickly, leading to high volatility. 

All cryptocurrencies are purely digital assets. This means that its value is entirely based on the laws of supply and demand. Therefore, anything in the market can be a stabilizing factor. This leads to a flow in supply and demand with the cryptocurrency. Moreover, these coins are still evolving. The blockchain in which these coins are sold and bought is still trying to be completely understood by many. Mark Blatt, a 11th Grade Student says, “I started getting into cryptocurrency over two years ago and still I do not completely understand it. It takes time until this confusion turns into an interest on how to trade and play around with these coins.” Mark’s statement proves that generally it takes time to understand this concept. Remember, these coins were only created about a decade ago.

Furthermore, differing from the stock market, most of the investors who are interested in cryptocurrency are not full time investors, but rather “part-timers” who take out a portion of their money to invest. These people come with a hope of big gains, and if this does not happen, they lose patience and pull out all of their money. Therefore, this leads to frequent withdrawals and involvement making cryptocurrency very unstable. 

Due to the number of reasons that make crypto a highly elusive market, nothing can be estimated or predicted. In the world we live in today, cryptocurrency plays a very big role due to its evaporative nature and the course of its volatility.

https://www.forbes.com/advisor/investing/what-is-cryptocurrency/

https://www.cnbc.com/2021/05/19/why-is-bitcoin-so-volatile.html

https://www.bankrate.com/investing/bitcoin-and-crypto-crash-what-investors-should-do/





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