Why are Cryptocurrency Markets so Volatile?

The first cryptocurrency Bitcoin has been around from more than 10 years and since its inception we have seen various Altcoins coming in the market with an aim to create a fundamental strong and secure decentralised financial network across world, to create a real asset value for its users.

Though Bitcoin has given very high returns on investments but still the cryptocurrency markets remains very volatile in nature which has attracted the attention of various financial experts from all over the world debating on sustainability of a decentralised financial asset. Cryptocurrencies pertains a high risk to reward ratio, therefore it is advisable to trade cautiously considering the volatile prices. To build a strong financial network apart from Cryptocurrencies, Forex Affiliate Programs also provides stability in the returns.

Volatile Cryptocurrency Markets

Cryptocurrencies are at a very nascent stage as compared to other financial instruments of value. Though the basic principle of demand and supply applies here but there are other several factors which affects the pricing of cryptocurrencies like utility in the real world and limited supply in the market.

We have seeing Bitcoin prices going from $0 to $61,000 since its inception and Bitcoin has seen great fluctuations in its prices since Jan’21. Cryptocurrencies are purely digital assets and they are not backed by any physical commodity. Though the network remains decentralised but the fluctuation in pricing depends on several factors apart from demand and supply in the market.

Quick Wealth Generation Tool

Bitcoin’s successful story has influenced many young investors and people are investing in various cryptocurrencies to generate quick wealth. This is increasing volatility in the market as long term holdings are less in number and people are trading for quick wealth, therefore bring instability to the pricing.

Restrictions on trading and mining of cryptocurrencies

Cryptocurrencies have been around us from a long time but their acceptance around the world’s Governments is still not there. Restrictions on trading and mining of cryptocurrencies in a particular region is controlled by Government and strict rules and regulations are affecting the crypto markets.

Absence of Real Utility 

Cryptocurrencies are still not accepted as the primary or secondary form of currency for making transactions which brings a question on their utility in the real world. Any currency which has no (or less) utility in the real world is bound to be volatile.

Limited Number in Circulation 

Cryptocurrencies are not backed by any physical commodity and as they are circulated in the market as a result of solving complex algorithmic puzzles, their numbers in circulation are pre-defined. Any resource which is finite in number (like Oil, Gold, etc) is bound to have volatile price.

Cryptocurrencies market is currently seeing a huge volatility due to recently gained popularity among masses.