Have you heard about cryptocurrencies? We bet you have unless you’ve been living under a rock. Everyone is talking about them. Things will get like that when there’s money to be made. More than a decade since the first time the term became viral, many individuals have become millionaires on the back of Bitcoin and similar digital currencies. When everything is put on paper, crypto is an amazing story, and the book of financial markets can’t be imagined without it. But, as it’s usually the case, matters can’t remain fully positive. Even today, many people are afraid of investing in digital currencies.
One of the primary reasons why things are like this is due to the volatility. You know the term, we’re sure, and it’s been used in almost every article regarding cryptocurrencies.
One of the main traits of every crypto is its volatility. It affects their value, and it creates highs and lows for every crypto out there. Considering how big of a factor it is for the lifespan of a digital currency we feel obligated to talk about it in this article. So, let’s see what factors affect the volatility of cryptocurrency?
Bitcoin is not in the world of its own when it comes to financial markets. Yes, there are various things that make it highly independent, but it can be influenced by outside factors. News and talk about it affect its volatility in a great way. The best way to put this into perspective is through one of the more recent examples. First of all, you know how China is a closed country despite its spreading influence. Their government decided to ban digital currencies and they already put this into motion. The first move was to forbid their banks to do transactions in cryptocurrency. When this happened, the price of Bitcoin and similar more popular currencies dropped.
Another amazing example is Elon Musk. The man who is infatuated with crypto can make its value go up and down alike. He made the price of BTC drop after he announced that his company Tesla won’t be accepting payments in this crypto any longer. This was a big hit for Bitcoin, as the market saw it as a sign of weakness.
But, at the same time, with his words and actions, he helped another crypto. When Musk publicly spoke about Dogecoin and tweeted about it, the price of this cryptocurrency skyrocketed. So, as you can see the money talks always find their way to the ears of listeners. And yes, the world of crypto is not deaf to the whisperers of those in power.
Lack of an Oversight
As we said, cryptocurrencies do possess a certain degree of independence that fiat currencies do not have. There’s no central bank controlling any of it nor there is a regulatory body to oversee it. Of course, this doesn’t make it illegal as many people are inclined to believe. In fact, the internet is full of regular trustworthy companies that deal with digital currencies and one of those can be found if you visit this website.
But, even with good cooperates you can find on the web, the uncertainty that comes from the lack of regulation or bodies that would deal with the legitimacy of every crypto which is created does make the price of it oscillate. Volatility comes from the fact that in the end, people love when there’s a strong grip on the financial instrument. It makes them feel secure. The good news is that it is put in motion in some countries, the idea of having an oversight on the crypto market.
This is quite an interesting subject to talk about. Bitcoin set the rules for every crypto that came next. Make it a limited edition. 21 million coins is not a small number, but it is a reachable one. Especially when you know that miners are closing the gap on 20 million and they’ll be there soon. So, there’s a limit to digital currencies, an end. When you put it like that, people feel uneasy. Of course, unlike BTC other crypto have more to offer.
For example, Litecoin has a database of 84 million, while Ethereum-based Chainlink has a 1 billion supply. Of course, nothing compares to the value of Bitcoin, but when you know that there’s an end you don’t want to be there when the lights go out. But, as Eminem put it, some of us are going to stay with crypto ’till the roof comes off, ’till the lights go out.’
People are afraid of what’s going to happen when there’s no more BTC to mine. To tell you the truth no one knows what’s going to happen, so it’s fair to feel uneasy about it. But just don’t complain about the volatility on that end.
Digital currencies are a cutthroat business. This might sound like a harsh description but that’s the truth. We’re not talking only about Bitcoin and Ethereum and other top digital currencies. They’re in a stratosphere of their own. Each day we have new crypto brought to this world. Even more of them, some of which do not even live long to see another day.
Back in the day, there were only a dozen digital currencies. Today, we have a couple of thousand. Some of which you haven’t even heard of. Some of them are designed to be a scam, others just don’t fulfill their potential. At the same time, many new cryptos have become mainstream. If we go back to the start of this article you can see what Elon Musk, the founder of SpaceX and Twitter mage did for Dogecoin. All of the new cryptos are on the same playground battling for their place under the sun. So, it’s no wonder there’s volatility. With that many competitors, some crypto are bound to rise, while others will fall out of grace. Let’s get back to the beginning of this article and then to the beginning of this paragraph. Digital currencies are volatile and this is a cutthroat business. It is what it is.