Over the last few years, cryptocurrencies have caught investors’ fancy, yet their high volatility keeps many away. Here we take a look at the volatile nature of these digital assets.
Why is Crypto So Volatile?
Is it safe to buy Bitcoin or any other cryptocurrency when prices dip? These questions cross investors’ minds even as business leaders and economists, including Paul Krugman and Warren Buffet, consider crypto a mirage.
Experts give their opinion on the volatility of cryptocurrencies and why the market is so volatile.
The Bitcoin Crash in 2022
Bitcoin is the most popular cryptocurrency. Yet this digital asset has seen the maximum swing in the past year. Bitcoin’s 52-week high and low are $68,906 and $17614, respectively. This has made this cryptocurrency among the most volatile cryptos and challenging for traders and investors to decide on the right entry point. Other cryptos, such as Ether and Terra stablecoin, have similar falls. The overall Crypto market has been unstable, wiping out more than $200 billion from the crypto verse. Stablecoins are pegged to other fiat currencies, yet the value of Luna Terra plunged by more than 80%, making the coin’s value worthless.
Reason for the Volatility of the Cryptocurrency Market
The cryptocurrency market volatility is linked to demand and supply. The tricky aspect of this asset is that it is hard to specify what actual value it brings to its holders. Low volatility indicates the market is stable and reliable for investors. In the case of high volatility, the financial reward is higher, but there is uncertainty and risk.
The cryptocurrency market is relatively new and vulnerable to big players controlling the market movements. The volatility is therefore expected.
Is it a Good Idea to Purchase Crypto on Dips?
The general sentiment is to buy dips in stock markets, which is applicable in cryptos. Experts say small investors should stay away from cryptocurrency speculation and invest only a portion of their portfolio in crypto. Others feel that crypto will die and be a risky investment. It is challenging to know the actual value generated by this asset; the main problem is known when buying.
What Causes Crypto to Rise?
The main reason for the price rise of cryptos is demand. We have seen that in Bitcoin, where demand kept pushing the price to astronomical levels. Other factors include the adoption of cryptocurrencies by more investors and inflation, as many big players see investment in Bitcoins as a hedge against inflation. The trading boom during the pandemic also led to meme coins giving abnormal returns.
Conclusion
The cryptocurrency market is recovering slowly, with the leader’s Bitcoin rebounding above the $20,000 level. The market capitalization has also increased with the hope of more capital investments and corresponding stability to the most volatile cryptos.
