Why Are Cryptocurrencies So Volatile?

Why Are Cryptocurrencies So Volatile?

Cryptocurrencies prices are very volatile, you can see thousands of dollars increase or decline in just one day, this has created a very important question.

Why are cryptocurrencies so volatile?

We will answer this question in this section of this article by Aron Groups Broker, there are multiple factors for these rapid changes in the prices that we will explore.

#1. Cryptocurrencies Are Decentralized

One of the most important reasons that cryptocurrencies are so volatile is the decentralized nature of this market.

• There is no central authority to manage this market, and players of this market are the ones that together shape the management of this market
• This decentralized nature of the cryptocurrencies market has created a space where no central authority can manage the supply and demand or prices of this market at a determined level

This decentralized nature of the cryptocurrency market is one of the reasons that the prices are so volatile, and prices are changing rapidly.

#2. Supply & Demand Aren’t Managed

The other reason that the cryptocurrency market prices are so volatile is that supply and demand aren’t managed, and are distributed across the millions of players in this market.

• Considering that a market has a central authority to manage supply and demand, such a process can manage the prices
• In the cryptocurrencies market, supply and demand aren’t managed, players are diverse, and there is no place for controlling the prices

This lack of management in supply and demand has created such a condition that the prices of cryptocurrencies are very volatile daily.

#3. Reactions Are Quick By Players

One of the features of the cryptocurrency market is that this is a global and digital market with highly active players.

• When the prices go up or down, players in the cryptocurrencies market react very fast, this creates a space where the pace of the price changes becomes very fast

Reacting very fast by the diverse players in the cryptocurrency market are one of the reasons that cryptocurrency market prices are very volatile.

#4. Many Players Don’t Know Much About Cryptocurrencies

The Cryptocurrencies market is new, and many people and players in this market don’t have enough information about cryptocurrencies, and their ins and outs.

• This lack of sufficient knowledge among players in the cryptocurrencies market is one of the reasons that the prices of this market are so volatile
• Cryptocurrencies are new markets in the financial markets in the world, and players that don’t have enough knowledge, become emotional and increase the volatility of the price in the cryptocurrencies market

#5. Marketing Is Very High For Cryptocurrencies

If you look at websites, from news websites to financial websites, there is news and information about the cryptocurrency market everywhere.

• Marketing is very high for the cryptocurrencies market around the world
• This has created an interest among the people to participate in this market without having the sufficient knowledge

The combination of this market about the cryptocurrency market is one of the reasons that prices are so volatile in the cryptocurrency market.

#6. There Is a Social Fear

There is this social fear in the cryptocurrency market that when the prices are up, it’s time to purchase the coins to become wealthy, and when the prices are down, there is this fear that the cryptocurrency market will collapse.

This social fear is one of the reasons that cryptocurrency prices are volatile.

#7. There Is a Social Missing Opportunity

Social missing opportunity is the other feature of the cryptocurrency market.

• Cryptocurrencies are growing, this becomes a trend, and people will go into the market to purchase
• The opposite is also true, this reaction is one of the reasons that cryptocurrencies are so volatile

#8. Millions Are Involved

Players in the cryptocurrency market are millions, in the cryptocurrency market, supply and demand are very important, and millions are involved.

• Millions are players in the cryptocurrencies market, and many of them are emotional and don’t have sufficient knowledge about the cryptocurrencies market
• There is no central authority, and supply and demand are the main forces

These things together mean, cryptocurrency market prices will be volatile and this is among the reasons that this market is very volatile.

#9. Applications Aren’t Clear

Cryptocurrencies are new, and applications of this market are just being discovered.

There may be new applications, causing major changes in the prices of the different cryptocurrencies. 

#10. Cryptocurrencies Regulations Are Evolving

The other reason that the cryptocurrency market prices are so volatile is the regulations in this market.