The crypto industry is known for its value and the technology backing its existence, defining its characteristic and volatility. Even when trading the largest and most established cryptocurrencies, such as Bitcoin, the fluctuations in the crypto trend is not a rare sight. You can easily assume a 5%, 10%, or even 15% rise and fall in its prices.
If you are a beginner in crypto trading, you need to learn the reasons behind these Fluctuations.
As you already know, Cryptocurrency is a digital decentralized currency without ties to the central government or authorities. It means; Crypto does not come under any control or reliance of the government. However, it has its side effect, which is the fluctuation in the prices of cryptocurrencies. Due to the fact that there is no involvement, which means, it is not wise to think that crypto will trade traditionally and more stably.
So, let’s get back to where we have started and what is creating these Fluctuations. Let’s unfold the factors driving Crypto value:
Supply And Demand in The Crypto Market :
The value of Cryptocurrency depends on its Demand, and we already know that supply and Demand go hand in hand. As the rule states, the value increases when the Demand outpaces the supply. There are most cryptocurrencies implement mechanisms to limit supply and prevent inflation. For example, Bitcoin is designed in a way that it has a fixed maximum supply of 21 million BTC, after which mining more becomes impossible.
Moreover, Demand depends on the number of people investing in Crypto—similarly, interest in Cryptocurrency and its investment surges. Therefore, demands drive the crypto value upwards.
Role of Investors:
If the investors consider their investment too risky and take a step back. Which ultimately reduces the Demand, causing a decline in crypto value. Have you ever wondered why the market is down in the summer? C’mon, we already know the reasons that are external circumstances such as surges in gas prices and inflation that cause the investors to pull out their investment. In the end, it’s all a circle.
Market Perception:
The market perception of a product, asset, or service depends on the value that is assigned to it. It is not entirely similar to Crypto’s case, but closely related to it. The higher the value of Crypto, the more investors are willing to pay for it.
More precisely, the incline in Crypto’s value is because of the number of people who have a positive market perception towards it.
The incident reflects the role of market perception in Crypto prices
The incident in Nov 2021 will give the justification for this after the launch of the first Bitcoin exchange-traded fund. The value of the bitcoin reached its peak worth of $65,000.
But there is a catch; it works vise-versa. Therefore, the market drops because some specific coins have lost market perception. It can be due to certain adverse events such as bad publicity, unethical behavior from project leaders, or security breaches.
As a result, losing market perception reduces the Demand that pulls its value down.
Competition:
Competition plays a significant role in the fluctuations of the crypto market as the industry is constantly evolving, with new projects and cryptocurrencies emerging regularly. Each project aims to solve a unique problem or provide innovative features, which leads to competition among different cryptocurrencies.
When a new cryptocurrency enters the market, it often attracts attention and investment, impacting the value of existing cryptocurrencies. Investors may shift their focus and funds from one Cryptocurrency to another, leading to price fluctuations. Additionally, competition fosters innovation and improvements within the industry as projects strive to differentiate themselves and gain a competitive edge.
Moreover, competition among cryptocurrency exchanges can also influence market fluctuations. Exchanges compete to attract users by offering different features, lower fees, or a more comprehensive selection of cryptocurrencies. Changes in trading volume or popularity of specific exchanges can affect the Demand and liquidity for certain cryptocurrencies, consequently impacting their prices.
To Wrap up:
Several factors, including supply and demand dynamics, investor sentiment, market perception, and competition among cryptocurrencies and exchanges, drive fluctuations in the crypto market. Understanding these factors is crucial for both beginners and experienced traders to navigate the volatile nature of the crypto market and make informed investment decisions.
