If you've been holding onto your crypto for a while, you've probably noticed that its dollar value goes up and down on a daily basis, and this could either thrill you, or cause your heart to sink.
Green candles induce excitement, whereas red ones evoke fear. Remember that keeping your emotions in check is one of the most important aspects of investing.
In this post, I'm going to go over some of the reasons why crypto prices are so volatile, and why this shouldn't concern you in the long run.
In order for a crypto to have dollar value, there must be a market (exchange) where it can be bought and sold by traders and investors.
For example, Binance and Coinbase are two of the biggest exchanges, but there exist hundreds more where retail investors can create an account and load it with dollars to buy crypto.
Similar to the stock market, the price of a crypto falls when there are more sellers than buyers, and it increases when there are more buyers than sellers.
So what causes the buyers to switch to sellers?
Negative or positive news can have a real impact on a crypto's price.
For example, news that a crypto has been listed on a big exchange will cause the price to pump, as it becomes available to more investors and traders.
On the other hand, news from the SEC (Securities and Exchange Commission) that a crypto has been declared a security would cause the price to fall, because regulated exchanges would have to de-list it.
Sometimes false information gains traction on social media and pushes the price of a crypto up or down.
For example, earlier this year, there was a rumor spreading on Twitter than a Bitcoin ETF had been approved by the SEC, when in fact it had not been. Despite it being false information, the price of Bitcoin jumped 5% until the news had been confirmed fake.
Blockchains sometimes experience technical issues or get hacked. For example, this year we saw the blockchains Solana and Arbitrum shutdown due to excessive transaction load, and their prices dipped as a result.
Perhaps the most common reason you'll see a price dip is due to whales (wealthy investors) taking some profits off the table, and this often happens in a bull market.
As more and more people discover a promising crypto they start buying it, and the price climbs. At some point, whales decide to sell some of their coins and take profit.
Due to the large volume, a whale's sell order can cause the price of a crypto to drop by a noticeable percentage.
This blog is focused on finance and crypto education, because solid cryptocurrency projects are going to go up in value long-term.
Here we focus on the fundamentals so that we can better understand how cryptocurrency is going to change our economy and our governance systems.
There are other blogs that focus more on trading, which is simply the buying and selling of cryptos in the short-term to earn profit in fiat currency.
Trading requires a deeper understanding of technical analysis and market psychology to be a profitable endeavor, and we don't cover that here.
Various factors contribute to the daily price swings of cryptocurrencies, and it's very hard to predict what will happen in the short-term.
However, if we focus instead on the fundamentals, we can be fairly certain that the value of a crypto project will be much higher in the long run.
If you want to learn more about crypto be sure to check out my other articles here on Hive, or keep up with my more frequent updates on InLeo.
