Cryptocurrencies are among the most volatile assets in the world. Your crypto portfolio may be hit with a negative swing of 40% before you even have time to react, and it won’t be uncommon for you to be forced to liquidate your position and lose money.
Using a more conservative strategy could help alleviate some of these issues. You could consider spreading out your investment across several different coins or ICOs rather than putting all your eggs in one basket. Buy on dips and sell on highs, and if you do decide to go all-in on one coin that seems like it’s about to take off, understand how quickly it can come crashing back down afterward.
Bitcoin Can Change in Price by 10% Over a Few Hours
In a matter of hours, the price of bitcoin can fluctuate by as much as 10%. This has nothing to do with the state of the market. This might sound like an unusual amount of oscillation for a cryptocurrency value. However, it’s pretty standard for all cryptocurrencies that aren’t tethered directly to fiat currencies.
That’s because the cryptocurrency markets are based on a different set of criteria than that of commodities or stocks. For example, an individual bitcoin can be worth $20,000 in one market and $18,000 in another, even if there is no change in supply and demand between those two markets.
The reason for this is simple. Cryptocurrencies are bought and sold at different prices in different places around the world, essentially making each market its little microcosm with its own set of rules and regulations. The price you pay for bitcoin will depend on where you buy it.
Some exchanges charge fees, while others don’t. Some have more purchasers than others. Because these markets are so varied, they tend to be quite volatile. This means that even insignificant news stories can send prices tumbling or soaring within a day. This ultimately contributes to why cryptocurrencies are so volatile as a whole.
As bitcoin has gained prominence as a cryptocurrency, there’s been an increased focus on the currency’s fluctuations. In such a volatile market as this, it can be all too easy to panic and sell out at the wrong time.
However, if you’ve done your homework and consulted with your investment advisor, then you’ll be able to make informed decisions that will help you keep your balance in the long run without losing too much money.
For those who are new to bitcoin or don’t have much cash to start investing, there are several options for how one can get involved in this exciting new financial industry while minimizing losses in the early stages of growth.
The first step is setting a stop loss and using limit orders specifically designed to prevent you from selling at a loss. With these types of orders, you avoid having to sell at lower prices than you want to. But you also need to take some precautions with them so that they’re not too conservative for your portfolio.
Supply Demand Factors
The cryptocurrency prices fluctuate based on supply and demand. In other words, if there are more buyers than sellers, the price goes up. If there are more sellers than buyers, the price goes down.
What factors into these fluctuations?
There can be a lot of different factors that affect the prices of cryptocurrencies. Some examples include:
The News Cycle
A lot of people purchase after seeing an article about Bitcoin’s meteoric rise.
Regulation by governments in China has caused a huge drop in the price of Bitcoin.
People in countries with failing economies sometimes buy bitcoins as a haven to protect their wealth.
Generally speaking, retail investors cause wild swings in cryptocurrency prices. They tend to buy when prices rise and sell when prices fall. This can lead to dramatic changes in the price of a cryptocurrency over a very short period.
Like any other market, the cryptocurrency markets are driven by investors. They buy and sell cryptocurrencies for their personal gains. These retail investors are your neighbors, your friends, and your coworkers. It’s good to know how and why retail investors cause wild swings in crypto prices.
The way retail investors affect the prices of most digital assets is pretty simple. They tend to buy high and sell low. Just like any other product or asset class, such as stocks or bonds, crypto prices swing wildly when investors change their minds about whether they think investing in these assets will generate solid returns. When that happens, retail investors go on a buying spree to purchase as many coins as possible at the lowest price before selling them at the highest price that day or over some time.
Cryptocurrencies are mysterious and risky, but they’re also the most exciting investment opportunity available today. If you understand them properly, you can be a part of the new digital economy and make money doing so.
What is most important to remember is this. Don’t invest more than you can afford to lose. Investing in cryptocurrencies isn’t like investing in stocks, where financial instruments are backing the value of your investment. If the price goes down and you want your money back, it’s not clear if anyone will buy them from you at that price or even at any price.