Source:fool.com

Why Do Cryptocurrencies Fluctuate So Much – 2021 Guide

How many crypto investors do you know? The answer to that question is probably “a lot”. Well, be sure the number of individuals that will invest and trade with crypto will jump in the future. Only five years ago, no one could ever imagine that the prices would jump that much. But, was the history of crypto always that good?

You do not have to analyze crypto in the past years. In only this year, Bitcoin and other altcoins have experienced fluctuation too much. That is the reason why Bitcoin has managed to break multiple records for only a couple of months. Things are not different when we talk about other cryptos.

Anyway, it seems that most people realize that fluctuation happens all the time. Because of that, most people would try to pick the best possible moment to invest and earn money. On the other hand, most people do not even understand why do cryptocurrencies fluctuate so much. Well, that is something we are about to find out together!

First Factor: Demand and Supply

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As for anything else in the world, the price ups and downs directly depend on the supply and demand. Supplying people with digital currencies is not easy. Whenever the demand is higher than the supply, the price goes up! On the other hand, if the demand is not that high, and the supply is functioning normally, then the price goes down.

However, speaking of these two activities, you need to understand that supply is much easier to understand. More precisely, in every possible moment,  the supply is transparent and well-known, especially when we talk about cryptos like Bitcoin. The supply has a cap on supply and that limit can never be passed. On the other hand, Ethereum does not have that form of limit which can cause even stronger price changes.

Second Factor: Costs of Production

Another factor that you need to be aware of is that production costs are changing over time. As we already mentioned, the production functions thanks to miners that use different equipment to mine digital currencies. Thanks to the decentralized network, this type of activity is functioning properly for many years.

But, as you could guess, the equipment is not cheap at all. If you want to become a miner, you will have to start your journey with big initial capital. Of course, the price of equipment varies from one crypto to another, but you can be sure it will mostly be expensive. When the supply increases, their price goes up as well as the demand for those machines jumps as well. Plus, many people see mining as an ideal way of improving national stability.

On the other hand, all those machines are using a certain amount of electrical energy. Unfortunately, the electrical bills are never low, so you can be sure that also directly influence the price. It may happen that the price of electricity jumps which automatically requires higher production costs and boosts the price of each crypto.

Third Factor: Competition

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It is hard to calculate how many cryptos currently exist in the world. That number is growing too often, and announcements about new cryptos are also a regular thing. Logically, just like in any other business field, the users of these cryptos are direct competitors. Whenever one crypto manages to defeat the other one, its price will grow. More precisely, it will attract the traders of competitive crypto which will automatically improve the demand. Logically, that will also affect the price.

Fourth Factor: Promotion

Reaching people is no longer a problem. Everyone can start a paid ad marketing campaign on social media and interact with a target audience that way. However, to become successful, businesses have to become recognizable brands. Without any doubt, Bitcoin, Ethereum, and other cryptos are not just digital currencies – they are brands that support a certain vision and have a certain mission.

Anyway, the promotion of particular cryptocurrencies affects the price a lot. Logically, the most powerful tool is mainstream media. When crypto appears on TV, people start to be interested in it. If there is someone who knows how to promote it, the demand automatically jumps.

But, in a world where social media are an impeccable promotion tool, influencers also impact the price of all cryptocurrencies. The price of Bitcoin started to jump after only one hashtag that was written by Elon Musk, one of the richest people on the planet Earth.

Fifth Factor: Government Support

Source:zycrypto.com

Even if you are not interested in politics, as a future crypto trader, you will have to analyze the situation in the entire world. Fortunately for all crypto users, digital currencies are becoming acceptable in all parts of the world. Logically, governments of countries from the west are the first ones that accepted them, but the same trend continued in all parts of the globe.

The government law adaptations are also some sort of promotion. But, they are also more than that – they are opening a new market where people can trade. Logically, that boosts the demand and improves the value of each crypto that is accepted.

But, there is also a negative influence. For example, some countries (we won’t name them now) have partially or completely banned the usage of digital currencies. Logically, that reduced the potential demand which automatically affected the supply and overall price of particular cryptos.

Final Thought: How to Become a Succesful Trader?

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Answering this question in a couple of sentences is almost impossible. But, in the short term, trading with multiple cryptos is not a good idea. You will never have enough time and energy to equally focus on each one. Focus only on one and master it. After that, you can invest in another one.

But, that doesn’t mean you should wait for a huge profit. Instead of that, regularly follow the latest news on websites like techtimes.com and explore the potential opportunities that can bring you profit. That way, you will surround yourself with good quality information and ensure that everything goes in the right direction.

In the end, use every possible opportunity to educate yourself! Even if you make a mistake that costs you a lot, turn that into lesson and try to fix it next time.


Ricardo is a freelance writer specialized in politics. He is with foreignpolicyi.org from the beginning and helps it grow. Email: richardorland4[at]gmai.com