Cryptocurrency market prediction is tough because a crypto market is getting more and more volatile day by day if you compare the crypto market to stock trading. In stock trading, you can do a technical analysis to predict the market situations.
2017 was the least volatile in the stock market history of decades. On the other hand, the crypto market is much fluctuating and this is why investors like Warren Buffett not in the favor of the crypto market.
Let’s look at some reasons behind crypto market volatility.
1. Small Market.
Crypto market is very small compared to the stock market. Trillion dollars traded in stock markets every day, on the other hand only millions of dollars traded in the crypto market.
If the market is small and tiny it also fluctuates more because small things can bring a drastic change in the market.
Crypto community still growing and it is not popular as stock market among people so this is one of the biggest reason why crypto market so much fluctuates.
2. No Central Authority.
If you use cryptocurrencies then you’re the controller of your own crypto holdings there is not any banks or governments are controlling it.
In a crypto trading, trust plays a key role because when buyer and seller agreed to make a transaction with a specific price that price is considered as an actual value of the currency.
But in stock trading company performance and there future plans deals and the history of the company is matters, where the company can control the situation.
3. No Intrinsic Value.
Stock market price is calculated on the basis of company performance, but cryptocurrencies don’t sell a product, earn revenue or employ thousands of people.
Companies work every day to make a better product or services and offer a dividend to attract more investors on the other hand just a tiny amount of the total value of the currency goes into miners to evolving it. Because of this, it is hard to value.
How do we know if it is overbought or oversold? When is it a good value or overpriced?
Without any fundamentals to base this information off of, we can only rely on market sentiment, often dictated by the media that makes money on viewership.
4. Fake NEWS.
Crypto investors are mainly relying on NEWS media for a better understanding of market situations, crypto NEWS is the only way to predict currency performance and also inform what is happening in the crypto community.
Fake NEWS spread to create panic in the market and spread FOMO and FUD in crypto holders, this panic selling or buying situations create more fluctuations.
5. Fixed Supply.
There is only 21 million Bitcoin can exist and only 101 million Ethereum available, top cryptocurrencies are limitedly available this is also a good thing and same time bad because of the limited supply future value of currencies can go high but on the same time it can create a monopoly and it became hard to mine currencies.
Only a few people control the market is not a good situation also not good for trading.
6. Differences In Price.
Top fiat currencies do not have a huge price difference, like Doller and Pound or Doller and Euro, also, they do not have any huge difference in exchange value that’s making them so liquid for traders.
On the other hand in the crypto market, you see that Bitcoin price sometimes hits thousand dollars and other cryptocurrencies are still in a hundred dollars this huge difference in a market this situation not offers liquidity to traders and the crypto market is a tinner that’s why there is no lot of options to traders if more people enter the market it became more and more volatile.
Manipulations in a crypto market are still not proved but this can be done because the crypto market had a lot of central exchanges than decentral exchanges also whales can manipulate prices.
Sometimes new people can’t understand what is going on in the market that time someone can easily manipulate them.
If you run centralize exchange then you have an opportunity to manipulate prices even in a regulated environment so that might be very attempting to decide that, if I can just hide the behavior I may be able to make an extra million or two that’s a very very tempting position for somebody who’s running a centralized exchange.
Also, whales can manipulate prices by buying and selling cryptos in huge numbers.
8. Lack of Security Measures.
Speaking of exchanges, crypto exchanges are more vulnerable to attacks if they not fix security problems early.
If you noticed crypto news then you know that a lot of hacking news is come up in a year, that’s why the best way to store your crypto is to use cold wallets like Ledger Nano
Sometimes exchanges do not have the system to match their user base that time exchange can be crash.
This type of vulnerability is affecting the market badly and make even more volatile.
9. Non-Wide Spread Adoption.
Cryptocurrencies are a new technology, many nations, and banks still not recommend to use crypto transactions so lack of their support many people still fear to invest in crypto and sometimes this caused to spread FUD in a market.
In the eyes of many people, cryptocurrencies are used in dark web to support illegal activities, if you invest your money in crypto you lose all your money overnight. These kinds of thoughts make people fear to invest in crypto.
10. Short-Term Investors.
Nowadays crypto investment is like Getting Rich Quick scheme, many investors do not have long-term investment goals because of this habit they constantly looking on crypto price. If price drop they start pulling their money out if the price goes up they start to invest more money because of their actions causing more disruptions in the market.
These are some reasons why a crypto market is volatile, the main motive of cryptocurrencies is acting as a currency, not as a market share.
Cryptocurrencies are here because of making our daily life easy but now we are all using it as shares, but cryptocurrencies can be good investments if held for long-term with the right knowledge.