The crypto markets are awash with opportunities for profit-making. Bitcoin has experienced a 245% jump in value since last year, and a host of smaller cryptocurrencies have experienced even bigger gains in a short space of time. The second largest cryptocurrency, Ethereum, has climbed 784% over the same period. Another cryptocurrency, Solana, has tripled in value in a single year, threatening Ethereum’s dominant position in the so-called decentralized finance market.
Volatility of cryptocurrency markets
One of the biggest factors contributing to volatility in cryptocurrency markets is supply and demand. Because of the nature of crypto, supply dynamics can be unique compared to mainstream markets. A limited supply of a particular asset can spur unexpected and abrupt increases in demand, driving up volatility. Bitcoin, for instance, has experienced eight 50% price corrections over the past 13 years, but has recovered from each.
Volatility in cryptocurrency markets can be influenced by several factors, including news coverage and earnings reports. Positive news coverage can cause prices to rise, while negative news can cause prices to decline. Volatility can also be affected by unusually high or low trading volumes. Despite the volatility of the market, it remains one of the most speculative forms of investing.
Cryptocurrency markets are notorious for being volatile. XRP (Ripple), for example, gained 373% in May 2017 and then fell 36% in July, dropping from $0.40 a pop to $0.15 in August. Bitcoin is also known to have high volatility, generating headlines, but providing meager returns.
Impact of Terra Luna crash
While many crypto investors recognize that cryptocurrencies are risky, experience is the best teacher. This market is young, and there are many things that can go wrong quickly. Terra Luna is just one example. The TerraUSD/Luna exchange was overextended and investors pulled out. Terra’s value dropped dramatically in relation to the dollar in May. As a result, investors began to redeem their Terra for Luna to protect their investments. As a result, Luna’s price has collapsed to around one cent.
Terra’s crash has impacted the crypto markets in several ways. The collapse has wiped out $17 billion in cryptocurrency value. While it is unclear whether the crash was the result of a coordinated attack, some investors have admitted to self-harming after the collapse. While the collapse has affected the Terra ecosystem, the ripple effect has affected the entire crypto market. Because of the Terra Luna crash, many users of the crypto exchange have sold off their portfolios in order to recover losses, dragging the market down with them.
The crash revealed the centralized pressure points within the Terra ecosystem. Founder Do Kwon used his position to defend his Terra coin and thereby crush the market.
Impact of changes in technology
There are a number of changes that can have a significant impact on crypto markets. One of the most notable is the introduction of new regulations. New laws may help ensure the safety of crypto assets, but they also may create additional risks. These risks should be managed by ensuring that all countries work together to develop global standards for crypto assets.
Regulators must be able to monitor the growing use of cryptocurrencies. This means ensuring that policies are proportionate and follow the latest developments. This requires better data, which can be used to make informed decisions. One way to achieve this is to develop an international agreement on minimum standards for data. This could involve a globally consistent taxonomy.
Another change that could affect crypto markets is the rise in illicit activity. Although there are no known instances of cryptocurrencies being used to commit crimes, many believe that they can facilitate illegal activity. However, it is important to note that the emergence of illicit activities in the crypto markets could result in significant confidence damage for the broader financial system.
Impact of news and events on the market
In the last several years, cryptocurrencies have gained significant attention worldwide, and this growing popularity has influenced the way people trade in these markets. One recent study looked at how crypto markets react to positive and negative news, and found varying patterns in market behavior. While positive news stories tended to lift the price of Bitcoin, negative news stories tend to lower it. In contrast, news relating to GDP and CPI had no statistically significant impact on Bitcoin returns.
To examine the impact of news and events on crypto markets, researchers gathered media articles and downloaded text files from traditional media outlets worldwide. The researchers selected articles that were published in at least 60 countries and covered a broad theme related to ‘cryptocurrency’. In total, 4,218 news articles were collected from Nexis’ news database and News API.
Throughout the month of June, there were several important events in the crypto industry. Several companies announced layoffs or froze withdrawals to limit their losses, and others filed for bankruptcy. Some analysts warn that the worst may still be to come. Genesis, for instance, cut 20% of its workforce and announced the resignation of CEO Michael Moro. In addition, it disclosed that it suffered losses related to the collapse of Three Arrows Capital.