Why does crypto currency price go up and down

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The prices of cryptocurrencies rise and fall for the same reason it takes more genetic information to create a tomato than a human; for the same reason NASA lost track of Pioneer 10, and 11; for the same reason most people find love before they carry on. That is to say, forecasting what a stock, national currency, or cryptocurrency will be valued at in 6 months or 10 years is still somewhat of a fringe science. Even so, learning about some of the factors that affect it can offer peace of mind, and increase your probability of a happy return.

Bitcoin
The introduction of Bitcoin was the first time we figured out the concept of digital money. Thanks to the internet and a willing generation with change to spare, Bitcoin quickly graduated from nerd forums to Wall Street. Only 13 years later, countries are talking about making Bitcoin legal tender. Every cryptocurrency that has been created since then builds on technologies introduced by Bitcoin. It is easy to trade Bitcoin into another cryptocurrency. In most parts of the world, the only way to go from your favorite crypto to your local currency is to first convert it into Bitcoin. The value of every cryptocurrency is thus measured against Bitcoin. As a result, the performance of Bitcoin correlates to the performance of every other cryptocurrency. Bitcoin tends to lead the pack: up, then down, then up again. Often, you can make a good guess about the movement of your favorite crypto based on the movement of Bitcoin. Different cryptos trail Bitcoin by varying lengths of time; some are only hours behind, while others lag by up to three weeks.

USD
The United States Dollar (USD) is to national currencies what Bitcoin is to digital currencies. The USD is the favorite global reserve currency, accounting for 71.51% of all currency reserves around the world (in 2001, according to Wikipedia). Since the purchasing power of cryptocurrency is largely unrealized until it is converted to national currencies, the valuation of USD is also correlated with cryptos - except this time, it’s an inverse relationship! When the Dollar is strong, cryptocurrency valuation goes down. Conversely, when faith in the Dollar wanes, the value of cryptocurrency goes way up.

Retail Investors
Retail investors are all of us who buy and sell investments without professional training. We are usually motivated by personal goals, like saving for college, retirement, or buying a lambo. Retail investors tend to bring a lot of emotion to trading decisions. The bigger the herd of emotional investors, the more volatile the asset. Currently, more than 80% of the money in crypto is from retail investors. Professional investors have only recently started adding cryptocurrencies to their balance sheets. The predominance of retail investors in the crypto market is a factor in its volatility.

Crypto Cult Leaders
Crypto Cult Leaders are a phenomenon that amplifies the effect of retail investors. Many people who buy crypto do not understand what they are buying. Instead they turn to people they “trust” to do the work of researching and picking a crypto that will make them a lot of money. Influential personalities and self-declared “thought leaders” can have a cult-like effect. One popular personality with millions of followers can tweet a single image and it will lead to millions of emotional trades in the days to follow. Crypto cult leaders can introduce a lot of chaos!

Government
Traditional currencies are inexorably tied to the governments that back and regulate them. For example, to execute a purchase with the Korean won, you have to live in Korea. In China, physical cash is almost extinct; to buy anything, you must have a bank account.

Cryptocurrency inverts this familiar, top-down approach to money. Instead, it starts with you and your purchasing power, and imagines a world where any payment system could seamlessly convert one crypto to another. In this world you don’t need to live in Korea to hold and spend Korean won (if it was a cryptocurrency). You don’t need to have a bank account anywhere, because crypto allows you to be your own bank. When you swipe your card or tap your phone to pay, the computer will take whatever crypto you have, and convert it to the crypto the merchant wants.

Naturally this is a massive challenge for government regulation. The world described above doesn’t exist yet, but is approaching at an amazing rate - too fast for governments to have measured discussions about their roles and reactions to the new technology. Instead, every now and then, governments react in a way that can seem like an attack on crypto. When this happens, investors worry and sell their holdings, causing the price to plummet.

How we see it
Blockchain technology is a revolution not unlike past revolutions, and a lot of wealth will change hands. However, closely anticipating what the price of crypto will do today or tomorrow may be a fool’s errand. Instead, we recommend you do your own research. Look for blockchain projects that are building toward a future you align with, and which promote a community that shares your values.

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Why did you pick the crypto project you are involved with? How do you handle price fluctuations?

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Darlington Wleh September 24, 2021 Reply

All the recent news about china deeming all crypto transactions illegal is no cause for worry. China has just about “ban” or directly attempt to limit bitcoin adoption within their borders every year since 2017. According to kevinrooke, the Chinese government also owns just shy of 200,000 bitcoin. Whatever political game is being played in that region poses no risk to the continual adoption of Bitcoin and public blockchain platforms.

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Yarr September 23, 2021 Reply

Is the current crash because of what’s going on in China? With the housing market there?

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September 20, 2021 Reply

This is a great article, especially on a day like this when it seems like everything is in the red. I am definitely holding my ADA for the long term!

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Spicymama July 13, 2021 Reply

Great article, learn something new about crypto.

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