Hello fellow Steemians.

Today is the first day of the week and I know that for most of you Monday is the most hated day of the week and I share your sentiments. However, to make this day a little better we can talk about a thing we all have a love for Cryptocurrency !!. No prizes for guessing :P. So lets get straight into it, Why are the prices of Cryptocurrencies so volatile ??

So basically the cryptocurrency markets are nascent markets i.e. they have not been around for a long time and are just coming into their own. Nascent markets have some indicators from which we can see that they are very volatile, these can be

• these markets are very thin that is they have less liquidity in them. Less liquidity means that cash flow is less as compared to some of the traditional markets like the foreign exchange where we have trillions of dollars which are traded everyday whereas on cryptocurrency market this amount can be 1 to 2 billion dollars. So the nascent markets move in very impulsive way, like you must have seen some news on some social media that bitcoin lost 30% of its value in 1 day which may be true because as compared to its high in the past 24 hours value it might have come down and this thing is shocking to some people who, one can say are traditional analysts of stocks. But I think you should not get in a mode of selling just because it fell very quickly because nascent market by their nature are very volatile, so this should be kept in mind while taking any decision to sell or buy for that matter. So you might loose a lot of money if you are new and don't know why these price shocks happen.

• if you compare crypto market to traditional currency markets you will notice that the buying price and selling price in crypto can have a range of few dollars however in the traditional market this difference is very small sometimes its even zero that is because traditional currency markets have tremendous amount of liquidity as I mentioned earlier. So as more and more people enter the crypto market, the market becomes more and more volatile and more and more people then have a vested financial interest in the price of the crypto going in one way or another. There may be people who have a vested interest in the prices going down who are called Short traders. Short traders are the people who generally sell at high prices and then buy again at low prices.

So if you see these shocks in the value you need to keep your wits about you and have to understand that this is the logical way for the crypto market to act because its so thin.

Manipulations? Surely not !!

Also one can deny manipulation of prices in crypto saying these markets are pure, wonderful and averse to corruption, but in my opinion manipulations occurs and it is mostly because these are new but also because these markets skirt the regulations in a lot of cases.) So in these markets as we get increasing number of people who don't really understand these market, those people are easy to take advantage of. There are only a certain key players such as central exchanges that kind of controls the whole inflow and outflow of the crypto itself. So if you run a centralized exchange then you have an opportunity to manipulate the prices. Even in regulated environment this can be very tempting to decide if I can just hide this behavior then I may be able to make an extra million or so that's a very tempting position for someone to be in who is running a centralized exchange. This behavior very hard to prove and often times impossible so I think its very naive of you to think it does not happen at all. So please be aware of that.

So these are some of the reasons why decentralized exchanges are more and more compelling. Also its essential to mention that the centralized exchanges are have a weak point that they can be brought down by attacks, DDoS (distributed denial of service) for example is the latest and if the prices are moving fast in an exchange then attacking the market creates an uncertainty of net exchanges. This can be another reason to not keep your crypto on exchanges as I wrote in the last blog. So you should always use a wallet from where you will be able to recover your crypto in case you loose your phone or burn your computer down in a rage of frustration after Bittcoin lost 30% of its value in one day.
So these are some of the reasons which together make the crypto market so volatile.

Be safe, be aware and happy trading :)

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