Why is the crypto market so volatile? | Personal Finances | Finance

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The first cryptocurrency was created over 10 years ago. Despite this, the crypto market continues to be very volatile. Cryptocurrency prices can soar or fall within hours. Corrections of 50% or more occur a few times a year on all major cryptos. Here is why there is such volatility in the market.

There are a number of reasons behind the instability of the crypto market.

Express.co.uk spoke to three crypto experts to find out what influences such dramatic price swings in the crypto world.

Big players influence the market

A finite amount of crypto coins is mined. These are largely held by a limited number of large investors in the market.

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Marcus de Maria, co-founder and CEO of Investment Mastery, told Express.co.uk: “The data shows that most coins are held in wallets and very few on exchanges, which creates a lack of liquidity.

“If a larger player wants to buy or sell, the impact on the price is quite large, hence the volatility.”

He added: “These big players, called the ‘Whales’, tend to sell larger quantities and lower prices in order to buy back for less.

“They can do it because of the lack of liquidity in the market. As the price drops, small retailers tend to panic to sell and the Whales take the opportunity to accumulate again. “

Panic buying

Another reason for market volatility is a “gold rush mentality”.

Some consider investing in crypto a get-rich-quick strategy.

Many investors “panicking crypto” may see prices rise unsustainably within a short period of time.

Katharine Wooller, Managing Director of Dacxi, told Express.co.uk: “The volatility of cryptocurrency is no different from forecourt prices during the recent oil crisis.

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“There is a combination of real-time shortage and panic buying of gasoline buyers through FOMO [fear of missing out] pushing prices at the pump to new heights.

Comments from governments and influential people

Messages from governments and notable figures can deter or attract investors, causing prices to move rapidly.

China’s crackdown on cryptocurrencies, for example, has significantly influenced the market.

At the end of September, the People’s Bank of China declared all crypto-related activities illegal in the country, causing the price of many cryptos to drop dramatically.

Comments from influential people like Elon Musk can have just as dramatic an effect on the market as governments.

Shiba Inu prices have risen by more than 400% this week after Elon Musk posted a tweet related to the currency.

Ms Wooller said: “Another complication is a plethora of positive and negative opinions from governments and regulators around the world, whose conflicting views push and pull investor sentiment, causing prices to move.”

Stability takes time

The first decentralized cryptocurrency (bitcoin), was created in 2009.

According to research from Investment Mastery, only around 300 million people are involved in the crypto market, and so many cryptos are still finding their natural price.

Curtis Ting, Managing Director EMEA, Kraken, believes the relative youth of the market is a major reason for its current volatility.

Mr Ting told Express.co.uk: “By their very nature, technological revolutions are often accompanied by periods of acute volatility as the free market tries to price innovation – the cryptocurrency space. is no different. “

But he added that over time, the crypto market is expected to stabilize as regulations surrounding it are clarified and institutions begin to adopt and accept these currencies.

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