Why Do Cryptocurrency Prices Move So Fast?
Cryptocurrencies really are the same as any other commodities. Their prices are driven by the laws of supply and demand—if people want to buy, prices increase; if people want to sell, prices decrease.
A big part in the price fluctuation is based on speculation. This speculation can be about a few different things when it comes to Bitcoin and cryptocurrencies. The underlying technology is the first factor-the amount of progress being made and how bright the future looks from a scaling and security perspective. Secondly, when dealing with a new asset class, not every government and institution fully embraces this technology. Future regulation can affect the way people are able to interact with the networks. These two factors play the biggest part when investors and traders try to speculate the future of the marketplace.
What exactly makes the market have such huge price swings in such a short amount of time though? The amount of volatility in the cryptocurrency space is in part due to the low amount of trading volume. When there is a lack of people trading, comparatively to traditional markets, larger players can move a market more effectively. Cryptocurrencies have smaller market sizes as compared to established forms of currency. The total crypto market cap is around $300 billion right now. The tech company Apple almost has that much cash on hand. This lack of inertia allows for large swings.
The other side of this can be due to the type of people trading the market. Wall Street controls the traditional markets and plays an overwhelming role in the structure of the movement within the charts. Cryptocurrencies are a bit different. It is the average investor taking part in crafting the space. This is the first asset class where the little guys are the first ones in. Not being as seasoned as Old Wall Street, people tend to move in more of an emotional pattern. With these emotions, movements can become more exaggerated and volatile.
We feel the volatility will decrease sharply as time goes by. There will be more governmental regulation in the market, which will bring an important number of corporate and institutional investors. As the market continues to grow and the technology becomes more adopted, the volatility of the market should decrease gradually along with the increase in volume.