Introduction
“When I buy, the market starts going down, and when I sell, the market starts going up.” As hilarious as this statement sounds, this is the story of a lot of cryptocurrency traders, especially the uneducated cryptocurrency traders.
Volatility is what makes the market attractive. No one wants to trade a stable market. The entire idea of trading is to use market volatility to your benefit. So what makes the market volatile? How can you take advantage of market volatility to constantly stay profitable? Let’s dive in to gain insight into the major factors that influence cryptocurrency market volatility.
KEY FACTORS THAT INFLUENCE MARKET VOLATILITY
Demand & Supply Dynamics
Demand and Supply are the fundamental factors that affect the price of anything in the open market, and cryptocurrency is not an exception. Always remember this basic quote in economics “The higher the demand, the higher the price, and the higher the supply, the lower the price.”
When next you observe any cryptocurrency price going up, just know that the demand for that cryptocurrency is high at that time. Likewise, when you observe prices going down, just know that the demand is low relative to the supply at that time
You might want to ask, why don’t we just keep demand up for prices to continue on an upward trajectory? Well, once prices have gone up due to demand, new buyers will be discouraged to buy because they consider the asset to be too costly. At that point, prices will stop going up, demand becomes weak, and those who bought already will start selling to secure their profits. Remember people are no longer willing to buy, so sellers will have to start selling at a discount to incentivize buyers to keep buying. At this time, you can say there is an excess supply and market decline becomes inevitable. When the prices fall back to the point where buyers are comfortable, another buying spree will start and a new cycle will start. Market moves in cycles!
General Market Sentiment
Market sentiment is all about how investors feel at any given time. It’s a measure of investors’ risk appetite. When they are willing to take risks and when all they just want to do is to avoid the market. In cryptocurrency trading, the fear and greed index is used to measure the market sentiment at any given time. There are two types of Market Sentiment, that is bullish sentiment and bearish sentiment.
The Bullish Sentiment
This is when investors are willing to take the risk, they just want to invest and they are excited about it. In this period, it can be said that investors are optimistic. The Fear and Greed index will be pointing toward the Greed section.
When the market is bullish, it means that demand is very high, and you can tell that the prices will rise until investors consider the market as overbought
Bear Sentiment
This is when investors are not willing to take the risk; at this time, they only want to keep their money safe. The Fear and Greed index pointer will be pointing towards the Fear section.
When the market is bearish, it means that demand is very low and prices will go down until the investors find the price appealing enough to start buying.
Government Policies
The Government continues to play an important role in cryptocurrency adoption. Some governments implement policies that favour cryptocurrency adoption in their region, while others are fighting cryptocurrency adoption in their region.
The impact of any government’s policy depends on how influential they are in the global market. These policies will affect the sentiment of investors to become either fearful or greedy, depending on the nature of the policies. Some governments have made their country a cryptocurrency haven, while others have tried to stop cryptocurrency transactions in their region
FUD
This simply means Fear, Uncertainty, and Doubt. FUD is usually triggered by negative events, which eventually cause panic selling. The volatility during this period is very high. The negative events can come from government policies, economic conditions, an internal crisis with the founders of the project, social media influencers, etc.
When there’s FUD, it’s always reasonable to stay away from the market or reduce your stakes, that way you won’t lose your assets to uncertainty.
Conclusion
Cryptocurrency market fluctuation is what makes it a tradable asset. With proper trading skills, you can use the fluctuation to make a lot of money
Some factors that influence market fluctuation include; Demand & Supply, General Market Sentiment, Government Policies, and FUD, etc. You have to properly understand these factors before choosing to invest your money in any cryptocurrency asset
To learn more about cryptocurrency trading, visit www.roqqu.com to sign up with Roqqu Academy today.
