While sudden drops and steep rises in the price of cryptocurrency are relatively common, the volatility of the market has decreased in recent years. However, irrationality remains a part of the game, even with the relatively limited coin supply. Over 2,500 cryptos are listed on hundreds of online exchanges. Here are some reasons for the volatile nature of cryptocurrency prices. Regulatory changes and Demand and Supply
Demand
The law of supply and demand governs the price of anything, and cryptocurrencies are no exception. As demand for a cryptocurrency increases, so does the price. More people buying bitcoins means a higher price, and vice versa. Because the supply of a cryptocurrency is finite, it is important to keep this in mind when analyzing cryptocurrency prices. The supply is limited, and demand is higher than the supply. As a result, prices rise and fall according to demand.
Many factors influence the demand for cryptocurrencies. Popularity, media recognition, and endorsements often overshadow usefulness. Fear of missing out on a hot investment can influence an investor’s decision to buy or sell cryptocurrency. The price of cryptocurrencies may grow by astronomical amounts, and this can justify its astronomical price. However, if a person buys a cryptocurrency for short-term profit, they may not realize the full potential of the investment.
Supply
To understand how the supply of a cryptocurrency affects its price, we must first define the concept of total supply. Total supply refers to the amount of coins currently in circulation. This figure does not include tokens that have been locked for mining or those that have been locked in smart contracts. Total supply is the number of coins that are currently in circulation, but not those that have been burned. This decrease in the supply causes the price of a cryptocurrency to fall.
The price of a cryptocurrency is based on its supply. The more scarce an asset, the higher the price. Conversely, a plentiful asset is more likely to have a low price. The supply of Bitcoin has been diminishing since its inception. Its supply has decreased from 6.9% in 2016 to 4.4% in 2017, and to 4% in 2018. Each halving event generally corresponds to a significant jump in price.
Availability
When it comes to buying and selling cryptocurrencies, one of the most popular questions is: where can I find the price of my preferred cryptocurrency? The good news is, there are many different methods available. One of these methods is by using a cryptocurrency exchange. These exchanges are called crypto exchanges and their prices are usually determined by the demand and supply for that particular currency. For example, the price of Bitcoin can fluctuate anywhere between five and ten percent per day. But the prices for smaller cryptocurrencies can be even more volatile.
Regulatory changes
Regulatory changes to cryptocurrency price could be beneficial in the long term. The current total market cap for cryptocurrencies is $1.8 trillion, but if new regulations are successfully implemented, it could double in just two years. This would also mean less volatility for the market, and there would be fewer assets being hyped overnight for the wrong reasons. However, these changes could bring risks to the cryptocurrency industry. So, what can the industry do to ensure they are protected from these risks?
President Biden has recently signed an executive order that outlines a federal strategy for cryptocurrencies and the digital currency future of the U.S. central bank. This executive order calls for regulators to evaluate digital currencies and to create policies that protect consumers from systemic financial risks. This move will likely make cryptocurrency more stable for everyone, but it also will increase the price of the cryptocurrency. While there is still no regulation in place, many people in the crypto community want it.
Public sentiment
The study also examined the sentiment of Americans regarding cryptocurrency. A survey of 10,371 U.S. adults was conducted in November 2018 to measure the level of interest in cryptocurrencies. Participants were recruited through a random national sample of residential addresses. The panel was weighted according to race, education, and gender. The result revealed that the average American has a negative view of cryptocurrency. Even those who viewed the study positively were still wary of the price of cryptocurrency.
Despite the skepticism, many cryptocurrency holders are used to the fluctuations. It is the biggest benefit of the cryptocurrency, but the main worry of many is its instability. Overall, 33% of cryptocurrency holders view the price as positive while 39% view it as negative. Among men and women, more Americans ages 18-29 have heard of cryptocurrencies, as compared to older adults. But, for non-owners, the public’s sentiment is mixed.