Cryptocurrencies are attracting a lot of investors due to their high gains, and the lows are also pushing a majority of the population away from the ecosystem of cryptocurrencies. The investors welcomed the start of cryptocurrencies with Bitcoin in 2009, and from there on, the market of cryptocurrency is skyrocketing. Still, the acceptance was not uniform or by everyone. To understand the extent of volatility, let us take an example of the most popular cryptocurrency, Bitcoin. Bitcoin went to its low of 31,000 USD, coming down to around 50% of its all-time peak of 61000 USD. The market has recovered from the dip, but it showed how serious the volatility is when it comes to cryptocurrencies and how we should not ignore it before investing in cryptocurrencies.
Another example of such volatility would be when Tesla said no to accepting cryptocurrencies as a mode of payment, the price went down quickly, and when Elon Musk wrote Doge on his Twitter handle, the price of Dogecoin skyrocketed. Cryptocurrency still struggles with being accepted as an asset and getting used as another fiat currency across the globe. One of the primary reasons is its young age. Cryptocurrency is fairly a new concept, and much like any other newborn concept, the general public is taking time to digest this technology. ALL these examples show how volatile cryptocurrencies are. All these and so many more reasons make cryptocurrency so volatile in nature. Let us go through some of them.
For any widely accepted asset class, there must be a governing authority for its regulation and governance. Cryptocurrencies lack this governing and regulating authority. They mostly work on peer-to-peer systems and blockchain technology, making the transactions anonymous. This anonymity is what attracts a lot of ill-earned money and pushes a big chunk of illegitimate investors away from investing in cryptocurrencies.
The utility is one of the major reasons for the price fluctuations of cryptocurrencies. If the coins are being used in transactions such as buying or selling goods, the price goes upwards. Whereas if the coins are collected just to sell them after some time can cause the price to go down pretty quickly. These accounts are known as whales and affect the cryptocurrency market in a significant way. This also makes the cryptocurrency much more volatile.
Unlike fiat currencies, cryptocurrencies are limited in number. Taking an example of bitcoin, which is limited to 21 million, out of which due to its popularity, a large chunk of this number is already mined. Another cryptocurrency Litecoin has a maximum number of 84 million coins, and Chainlink limits itself to 1 billion. On the other hand, as cryptocurrency is a digital asset, it totally goes by demand and supply.
During the last few years, cryptocurrencies have been linked to many frauds and deceit practices around the globe. The anonymous transactions made it easier for ill-intentioned people to fund terrorism or get into money laundering. The cryptocurrency being associated by many websites that are not so many illegal gave it a bad reputation. Because of this, many organisations and nations were hesitant to consider cryptocurrencies as an asset. This also pushed the market to such extreme volatility.
So many investors are flooding into the cryptocurrency ecosystem even after its high volatility because the high gains are also there. They consider the risk to be the worth of the profits they will eventually get if they are investing in cryptocurrencies. But this doesn't apply to the common public as they have to consider such uncertainties before investing their hard-earned money. The low adoption rate is going to keep cryptocurrencies volatile. The higher adoption rate can come if the cryptocurrencies get accepted by more organisations, nations, and common people should get educated about the intricacies of cryptocurrencies. Till then, it is what it is. Be very aware of its volatile nature before dipping your toes in the water. Do visit our other blogs to gain an insight into cryptocurrencies as a beginner. To check out more blogs on how to invest in cryptocurrencies as a beginner and all mistakes you should avoid, visit profit maximizer website.
