What Makes Crypto Volatile?

One of the most difficult parts of trading is predicting the market. On a basic basis, trading consists of buying an asset when its value is low and selling it when it increases. Therefore, you need to know which cryptocurrencies are increasing their value before investing in them. If you are interested in bitcoin trading, visit bitcoin profit .

The problem is that predicting market changes is complex, and many things cause the value of something to change suddenly. People call that phenomenon crypto volatility, and it represents the variability each asset can have under normal circumstances and after extraordinary events. 

However, four factors cause that variability, and they are demand, supply, regulations, and competition. Anything that could cause the price of a cryptocurrency to go upwards or downwards falls under one of those four factors or more than one of them. 

Understanding what those factors are is what lets you predict the market. Here, you can find some information about those volatility factors and how they affect the market. 

Volatility Factors

As we mentioned before, you need to understand the four crypto volatility factors to predict the market correctly. Read a brief overview of each one of them: 

Supply 

You can notice that some of the factors that affect cryptocurrencies are factors that also affect the price of other things on the market, whether they are physical or digital. The reason for that is they come after economic terms that rule all the financial operations and behaviors on our planet. 

The supply and the demand factor, for example, can alter the supply and demand economic term. If you know it, you know that the price of something increases if there are not many copies of it available. Hence, the value of crypto may increase if it’s not that easy to get it. 

Demand 

Demand is similar to what happens with supply since it’s based on the supply and demand economic term. Putting it simply, the price of the crypto you want increases if everyone wants it, but decreases if no one is interested in it. 

Thus, people investing in a cryptocurrency need others to also invest in it. 

Competition 

There are hundreds of cryptocurrencies available for you on the market, but not all of them are as successful as cryptos such as Bitcoin and Dogecoin. Other cryptocurrencies work to regulate the price of the main ones. 

Naturally, the demand for an asset is going to increase if it’s the only asset with that purpose available. Things change when there’s more than one since people have to choose between them. 

This factor goes around that concept since the value of one crypto can decrease if another offers the same benefits for a lower price. 

Regulations 

This factor has more to do with cryptocurrencies than it does with economic terms. When we say regulations, we mean legal regulations. Cryptocurrencies are decentralized currencies, so no one controls them. 

Nonetheless, what the government does is limit what you can do with cryptocurrencies. Those legal regulations can make cryptos more popular in different states. 

Is Crypto Volatility Good?

The short answer is that it’s not necessarily a bad thing. Crypto volatility is what makes trading possible since, if the value of each crypto doesn’t change, then there’s no point in buying it or investing in it. 

You can debate if it’s a good thing the level of volatility it has, but volatility by itself is necessary for crypto trading to exist. As for how volatile each crypto can be, the truth is that having that many sudden changes can make things more difficult for new traders than they should.

Conclusion 

Whether it’s something good or not, you need to understand crypto volatility if you want to become a better trader.