In December 2020, Bitcoin was trading around $20,000 (roughly Rs.
14.85 lakh).
In January this year, it crossed $40,000 (approximately Rs.
29.70 lakh).
Continuing its bull run, it reached an all-time high of $65,000 (roughly Rs.
48.27 lakh) by April.
Then in May, it crashed and throughout June it stayed below $30,000 (roughly Rs.
22.28 lakh).
The coin began rallying again around July 20 and surpassed $45,000 (roughly Rs.
33.42 lakh) last week for the very first time in almost three months.
Similarly, most other popular cryptocurrency coins have behaved over the past few months.
While this has resulted in a windfall for some, some others might have likewise lost a part of their financial investments due to the high volatility in the cryptocurrency market.The one concern most uncomfortable to a majority of financiers is: Why is cryptocurrency so volatile? The cryptocurrency market has actually been volatile from the beginning however the last couple of months have actually been particularly a wild trip.
There are a few aspects that figure out the trajectory of this market.Emerging MarketCryptocurrency is still an emerging market, gaining rapid popularity as well sustaining quick disenchantment among investors.
Despite all the media attention, this market is still minuscule when compared to traditional currencies, or perhaps gold.
This indicates even smaller forces-- a group of people holding big quantities of crypto coins-- can affect the trade.
Even if they sell just Bitcoins, it would be enough to crash the whole market.SpeculationThe cryptocurrency market thrives on speculation.
Financiers wagered that the costs would increase or go down to make profits.
These speculative bets cause an abrupt increase of money or a sudden outgo, causing high volatility.Purely Digital AssetMost cryptocurrencies, including Bitcoin and Ether, are purely digital properties with no support of any physical product or currency.
Which implies their price is identified entirely by the laws of supply and demand.
In lack of any other stabilising element, like federal government support, any number of reasons might lead to a variation in need or supply.Developing TechnologyThe blockchain or other alternative technologies on which these coins function are still developing.
It has just been a years because the Bitcoin concept was first proposed.
There is the scalability issue, when a clever agreement is not confirmed with the timeframe expected, creating abrupt down pressure.Fragile InvestorsUnlike realty or the stock exchange, this market is not viewed as requiring knowledge.
So mostly part-timers are investing in it.
They come with a hope of making fast gains however often when that does not take place, they lose perseverance and withdraw from it.
This regular participation and withdrawal also result in volatility.