Volatility in the market of cryptocurrency
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The cryptocurrency market is familiar because of the its volatility, it can be a risk and also a benifits for the investors and traders of the cryptocurrency. The relative low capitalisation of the cryptocurrency market is the main reason of the volatility of the cryptocurrency market as compared to the traditional markets of the finance. A small trading can noticeably affect the prices which is the primary source of the decrease and increase in the prices. For example, the Bitcoin is the biggest cryptocurrency known in the cryptocurrency market and it faces the waves of the prices increase or decrease within a sole day.
The attitude of the market plays important role in the volatility of the cryptocurrency market. The market of cryptocurrency is affected by the new cycles and trends of social media. The positive impact such as the positive news like regulatory clarity can cause a rapid increase in the prices when the additional investors enter the market.
On the other hand the negative news such as the regulatory crackdown and security breaches can cause the decrease in the prices in the market because it can trigger the panic selling of the coins.
The sentiment of the market is aggravated by the suppositional nature of the cryptocurrency investment it means that the traders sell and buy their cryptocurrency coins on the basis of their emotional level other than the foundational analysis.
The lack of the liquidity is many cryptocurrencies is another important feature which can cause volatility of the cryptocurrency market. When we talk about that what is the volatility, the volatility is the soften and ease with the help of it , and a benefit din advantage can be bought or sold without the feat if the decrease in the prices of the cryptocurrencies. The largest cryptocurrencies such as the Bitcoin and the other one which is Ethereum, these cryptocurrencies have a highest liquidity.
The traders can utilise the lack of the volatility by performing the large tradings that operate the prices increase or decrease and it can more contribute to the volatility of the market.
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The technology alos plays important role in the fluctuations of the prices in the market of cryptocurrency which is fundamental. Now I will talk about the technology underlying the cryptocurrency with the help of an example. Such as network blockage, issues with the scalability and also problems with the consensus mechanisms can affect the spread speeds of the transactions and it then affect the confidence of the investors.
The development in the regulatory can also affect the volatility in the market of cryptocurrency.When the governments all over the world grasp with the help of that how to regulate the digital assets and also report the new the rules and regulations can lead to rapid the reactions of the market of cryptocurrency.
Now I will talk about it with the help of an example, like when they banning of the cryptocurrency trading is announced in a country the it can lead to the instant selling. The leve of the uncertainties is also a factor which can cause complexity to the market of cryptocurrency.
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The psychological aspects in the process of trading cannot be overlooked and ignored. The factors such as doubt and fear can cause panic selling. This will build a volatility in the market of cryptocurrency.
In order to manage the risks related to the volatility of the cryptocurrency market the investors hire different plans. The diversification is an important strategy, the investors extend their investment over the multiple cryptocurrencies to alleviate the effects of swings in the prices in a one asset.
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