Cryptocurrency is at its nascent stage so expecting
little fluctuations in the prices is very common. These currencies are very
much in limelight because of the drastic fluctuations in their prices in recent
times. There are many uncertainties surrounding the cryptocurrency that might
be the cause of frequent fluctuations in the prices. The market has witnessed
drastic changes in the prices of cryptocurrency in a few matters of hours.
Therefore, you will get to know how volatile this currency is in reality.
Everybody is confused by seeing the rampant fluctuations in the value of
cryptocurrency. These changes are driven by numerous internal and external
factors. Let us discuss these factors below in detail:
Internal volatility factors
There are various internal factors that have an influence on the fluctuations
of cryptocurrency value. The following are some internal volatility factors
determines cryptocurrency prices:
- Transaction cost
While making a transaction, there are a few transaction and administration cost payable either to the financial trader, banks, or current markets. These costs influence the fluctuations in the value of cryptocurrency. Higher the transaction costs, higher is the price of cryptocurrency and vice verse. Also check
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- Mining difficulty
These currencies are operated on a global scale so as its mining operation. A few countries like China banned cryptocurrency mining. The ban hugely affects the distribution of tokens and the mining pools. The more difficulty you face to mine, it becomes harder to verify the transaction that leads to influence the value of cryptocurrency towards an upward direction. - Fork- Change in rules
A fork in cryptocurrency is basically a change in the blockchain protocol. It can have a substantial impact on the value of cryptocurrency. They are competing visions of the future of cryptocurrency. There can be hard and soft fork- a hard fork makes the value tends to rise and a soft fork makes it stable or declines in value depending upon the protocol - Supply and Demand
Supply and demand also play an important role in the variation in prices of digital currencies. The whole concept of fluctuations in the market depends upon its demand and supply. The demand and supply can be generally explained as the amount of product and services available for people to buy as compared to the amount they actually want to buy. If the security tokes available in the market are lower than the demand then the prices of cryptocurrency will be higher and vice verse.
External volatility factors
The event occurring outside of the cryptocurrency market which is not under control of the insider is external volatility factors. The following are some of the factors affecting the variations in the cryptocurrency market: - Technological progress
No one can ignore the technology aspect while reviewing the causes of fluctuations in the market. Technology has a huge impact on the variations in the cryptocurrency value. Emerging new platforms and investors have a positive impact on it. Attachment of technology in this digital currency has made it more secure and faster than the traditional economic foundation. However, you can always expect the downfall in the economy and technology. Therefore, it will affect the market in a negative way. - Cryptomarket Speculations
Speculations have a huge impact on the values of cryptocurrency. Investors who are dealing in the cryptocurrency from the beginning might know about how speculation can push the prices upward. Risk-taking investors or those having a large amount of currency buy and sell these currencies frequently to earn more money. This has an adverse effect on the market. - News
Media is a core influencer of many positive and negative impact on a particular product and service. Positive and negative reviews about the cryptocurrency have a huge impact on value rising and falling in the market. They also have a great impact if remarks are by political and economic authorities. - Political events
Many political events affect the rise and fall in the value of these currencies. Favorable events lead to an increase in its value and unfavorable ones decrease the value of cryptocurrencies. A perfect example is UK Brexit issue. A supporter of this event won, which leads to an increase in the demand for Bitcoin and cause an increase in its price.
- Integration in the Trade market
It was seen that news about the cryptocurrency is featuring in trade platforms have a positive impact on its value and cause a huge hike in its price. This was likely to be favorable for the rise of Bitcoin prices. - Blockchain collaboration in future
For financial technology, blockchain technology is relatively new. The cryptocurrency traders are observing an increase in the adaption of cryptocurrency payments after a successful collaboration with banks and education system. Due to this a drastic increase in the demand of cryptocurrency was seen that lead to an increase in its value too. - Economic conditions
Economical factors like inflation and devaluation have an adverse impact on the value of cryptocurrencies. Apart from development in technology, there are many other factors that remain the same. With the depression in the economy, the flow of cash is limited and the demand for the digital currency will also decrease leading to an increase in its value.
Conclusion
The price and value of the cryptocurrencies are being influenced by numerous factors. The value of the same can be pulled up and off even in a matter of a few minutes. This tells us how unpredictable this currency is. In order to see the exact trend in the cryptocurrency market, you need to keep a check on all global factors that are influencing the fluctuations in the market. Alone one thing can and cannot cause a huge impact on the value of anything it just depend on the circumstances. This hugely runs on the supply and demand approach because everything in the market is eventually about how much is the demand for cryptocurrency. The more will be the demand the higher will be price and vice verse.
