When we talk about digital assets, we simply cannot ignore or not mention cryptos, as they are probably the most profitable digital assets today. Even though when it all started, many were doubtful and thought of it as some kind of a scam, everyone today must agree that cryptos are something that will stay with us for quite some time. Now, like with most new things, especially when they are as complicated as the tech behind the cryptos is, it’s difficult to keep up with all that’s going on. Of course, the whole crypto market is still relatively new and, as such, surely has certain flaws but far from it that it is an unstable market. All of this is an even more reason why if you still haven’t dipped your toe into the crypto pool, you should do it as soon as possible, and we will try our best to debunk some myths and present you with examples and facts, especially about things that most people find difficult to comprehend, like the volatility of cryptocurrency.
What is volatility?
The term volatility is used to describe whether and how much certain assets are risky – the higher the volatility, the higher the risk. Some of you now probably think how if that’s the case, then since cryptos are highly volatile, it surely means that they are extremely risky. Well, let us stop you right there, as even though volatility can be used to describe the risk of some investment, in this case, cryptos, many other factors contribute to that.
The basic is simple, it is used to measure how much the price of some asset has moved down or up over a certain amount of time, and the main factor here is the time, and since cryptos are still new, one of the main reasons why they are highly volatile is that we simply do not know how the market acts, as not enough time has passed. As for factors for ups and downs of the value of the crypto, there are several of them, so let’s first check them out.
Factors that affect the cryptocurrency price
If we want to understand better why the price of Bitcoin and other cryptocurrencies is highly volatile and changes all the time, we need to understand the factors that affect it. A few factors affect the crypto price and cause its ups and downs, and every one of them is pretty important, so we will describe them further and try to explain their impact.
1. Supply and demand
The first thing we need to mention is supply and demand because it is something that determines the price of everything, and cryptocurrencies are not the exception. Many of them have a limited supply, and the demand for them is only higher and higher, so naturally, it causes ups when it comes to the price. The best example of the one with limited supply is the most popular crypto – Bitcoin, and its amount is known from the very beginning. The more people want to have something, the price will be much higher because the demand for it makes it more valuable. When the demand increase too fast, and there is not enough supply, you will need to pay more to get what you want, and it is simple like that. We also need to mention that some cryptos try to prevent the circulating supply from growing too much and slow down the inflation, so they “burn” some tokens, or better said – send them to the unrecoverable address on the blockchain. In that way, they have control over their supplies, and they can try to control the demand for them by correcting the price.
2. Impact of media
We are living in a digital era, and we can learn and find almost everything we want by browsing the net or from the media. It is much easier now to find the necessary information than it was just a few decades ago, and having the right information at the right time can mean a lot. Besides the availability of information, we are under the impact of media to a greater or lesser extent, but none of us cannot say that the media does not affect us at all. Cryptos were popular in media for a long time, which made people interested in learning more about them. Media popularize cryptos, and the ups and downs of their price depend on the story that popular media are talking to the people. That is why if the main topic is about how risky they are, their price is going to go decline because many would start to sell. On the other hand, if the media coverage is about how they can be the most profitable investment, their price will start to rise due to increased interest in them.
3. Costs of production
Most of the cryptos are produced by mining, or to explain it better through the process that requires a powerful computer and stable internet connection. Since mining requires powerful machines, the use of electricity is pretty high, which is always costly, and once the price of electric energy goes up, the price of cryptocurrencies will follow. Besides the electric energy, we need to keep in mind that these powerful machines and additional equipment can be pretty expensive, so it is understandable that it all affects the price of cryptos.
These are just some of the main factors that you need to keep in mind when dealing with cryptocurrency, especially BTC, as knowing what influences the rise and fall of its price can make you a hefty sum. Of course, some practice, skill, and knowledge are also essential, which is where these tips can help you a lot. Now, there are still many opposite opinions regarding crypto investments, and perhaps the best way to determine whether this is something you want to invest in is to create a pros and cons list. In case you don’t have time to do so or don’t believe you have all the necessary info to do it, bmmagazine.co.uk got you covered as they have taken into account all the facts and stats you might want or need to know.