By nature, cryptocurrencies are volatile. And a lot of cryptos have lost half of their value since November. And you can expect a more downhill trend every weekend.
Indeed, 2022 isn’t a good year for cryptocurrency. And experts still see more plummeting and downhill trends coming. Though this does not mean that all is lost.
The crashing of cryptocurrencies is to be expected, one must have the heart to stomach the losses experienced along the way. But there is an explanation as to why the crypto market is so volatile. Let’s take a look at several reasons.
1. Countries banning cryptocurrencies
Do you remember when China banned crypto mining sometime in 2021?
Tighter crypto regulations by governments and countries can have a negative effect on the crypto market. Miners will move to areas with fewer restrictions. So this will result in a decline in the hash rate or the number of calculations that can be performed in seconds. Once the hash rate declines, so does the price of crypto.
2. Many are still wary of security breaches
If there’s a suspected security flaw in cryptocurrency, fewer people will have the gusto to invest in it. And this can also cause a decline in the hash rate. Thus resulting in the decline of the crypto price.
3. Many still correlate crypto with the stock market
In an effort to adapt cryptocurrency to the traditional setting, many view crypto as something similar to the stock market. It’s true that investing in cryptocurrency and stocks involve risk. Both are volatile investments, and crypto can even be more volatile.
But the downside of investing in the stock market is that it is heavily regulated by the government. Thus, in the beginning, many see crypto as an easier route albeit the higher volatility. But with some countries imposing bans and tighter regulations, many see this leverage thinning out.
4. Lack of liquidity in the crypto market
Liquidity is the ability with ease for an asset to be converted into cash. And the crypto market does have low liquidity. This can somehow be attributed to the lack of exposure to crypto exchanges.
5. Crypto investors stirring the pot with their tweets and posts
Can you remember the Elon Musk tweet that caused the bitcoin price to soar high? He used the #bitcoin after a seemingly cryptic tweet. So when crypto influencers, such as Elon Musk tweet about bitcoin and cryptocurrency, the crypto community takes it to heart.
And this is how crypto influencers can contribute to the already volatile crypto market.
