Volatility in the price of cryptocurrencies such as bitcoin and ethereum frequently makes the news, with rises and falls of 40pc or more in a matter of days not uncommon. But what is actually causing the rollercoaster ride?

Current affairs

Cryptocurrency is often seen as an alternative to what is known as “fiat” currency – that is, currency where the value is backed by the government that issued it.

So when investors lose their confidence in a fiat currency because of economic or political events, they can turn to bitcoin or its rivals, pushing up the price.

Speculation

Cryptocurrency investors who lived through the dotcom boom will know all about how speculation can push up the price of an asset or deflate it just as quickly.

Speculative investors hope to make money out of cryptocurrencies, but may buy and sell quickly, adversely affecting the market or causing short-term swings. Investors talk particularly about “whales” – investors with very large amounts of a given currency, whose speculative trades can have a huge impact on the market.

Hacking is harmful

From bitcoin’s beginning to the proliferation of new currencies today, hacking has remained a problem for cryptocurrency investors. Every major hack into the system, or into cryptocurrency exchanges or wallets, has provoked a price crash.

 

Those are some things that tend to buff up the price, we will talk more about them in the upcoming articles

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