Why are cryptocurrencies so unstable?
Marketing specialists need to know how to promote crypto brands during times of high volatility and investor uncertainty
The crypto market has been volatile from the beginning, but the last few years have been a particularly wild vehicle for millions of investors around the world. Many have made millions of dollars in big rises, yet many have lost big and small investments in a bursting bubble and a sudden market downturn.
Still, marketing specialists need to know how to promote crypto brands during times of high volatility and investor uncertainty. To understand how to do that, you need to determine the factors that influence the price of digital currencies and how to use them in your favor.
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So why are cryptocurrencies so unstable? The main reasons why the prices of Bitcoin and other cryptocurrencies are so unpredictable are:
1. Cryptocurrencies are still emerging markets
Despite years of media attention for cryptocurrencies, the market size is still negligible compared to fiat currencies and gold. Even at its peak, the crypto market was only about $ 800 billion. This is a modest change compared to the total gold market of $ 7.9 trillion and the US stock market of $ 28 trillion.
This relatively small market size means that small forces can have a significant impact on prices. If a group of investors decides to sell $ 500 million in gold, the price of gold is unlikely to ripple. If the same thing happens to Bitcoin, it will be enough to destabilize the entire market and plunge prices.
However, the fact that the crypto market is still evolving also means that there are many opportunities to hit it with new and exciting projects. For example, not long ago, Telegram developers announced the launch of the blockchain platform TON and Coingram.
Interestingly, neither of these projects has been completed yet, but the news media has already announced the initiative. Therefore, entering emerging markets is a good way to talk about products and therefore be known and recognized.
2. Cryptocurrencies are purely digital
Most cryptocurrencies like Bitcoin are purely digital assets and are not supported by physical things such as currencies and commodities. That is, the price is set entirely by the law of supply and demand. The price depends on the number of people who currently want to buy Bitcoin, as the supply of many cryptocurrencies like Bitcoin is fixed or predictable.
There are no physical assets to support the value of major cryptocurrencies or governments and force their use as currencies. It means that their value is completely supported by faith. If people disbelieve that the value of Bitcoin will be maintained or continue to rise, they may sell. This lowers the price and can be persuaded to sell to others, so a cycle is formed and the price drops quickly. Conversely, prices can skyrocket, forming an over-inflated price bubble.
3. Technology is still under development
Blockchain and other alternative cryptographic technologies are still in the early stages of development. It's only 10 years since the idea of crypto-based decentralized currencies was published in the Bitcoin white paper, so it will take some time for the market to mature. Nevertheless, many companies have already adopted blockchain technology and are actively using it for marketing and advertising purposes. The most promising projects in this area are AdEx, Brave, and Steem. Exploring this technology can be very beneficial in brand marketing, as many customers find the transparency and other benefits of blockchain attractive.
On the other hand, the crucial development of technology can have a boosting effect. This includes structural advances such as the Bitcoin Lightning Network and new applications that are popular on blockchain platforms such as Ethereum. There are also many new cryptocurrencies that are constantly emerging to compete from the established ones and gain some market share.
4. Speculation
Speculation is one of the biggest sources of volatility in the cryptocurrency market. This includes investors betting that the prices of various cryptocurrencies will go up and down by buying and selling cryptocurrencies. In fact, it is the volatility of the cryptocurrency market that seduces speculative traders who are trying to make big bucks by guessing swings.
You can choose when the price of Bitcoin or XRP will rise, and if you can buy it just before that, you can kill it. Similarly, the encryption currency just before the crash short if possible cell also obtained profits. Many investors are constantly trying to infer up and down fluctuations in the cryptocurrency market. These speculative bets create more volatility in already volatile markets.
Cryptocurrencies are a small market for digital assets with a lot of speculation, so the media has a big impact on price destinations. Speculators and investors are always looking at the headlines of the next big news story that launches or collapses the market. When something happens, everyone knows that it is a buying and selling competition, with the fastest making the most profits and the slowest losing the most.
The story of the media surrounding the cryptocurrency market has a big impact on its price. Many people in the cryptocurrency industry don't help get news from less trusted outlets and social media.
In many cases, the media strives to be the first to deliver exciting news about the world of cryptocurrencies. Therefore, some marketing specialists have learned how to ride and profit from the wave of hype surrounding the rise and fall of Bitcoin. For example, if the price of cryptocurrency rises, you can get the topic of brand promotion by introducing cryptocurrency as a payment method.
6. Cryptographic Investor Profile
The final factor is the average investor profile in the cryptocurrency industry. Unlike other markets such as the real estate and stock markets, the barriers to entry for cryptocurrency trading and investment are very low. You don't need a lawyer, a trading license, or a minimum amount of capital to invest. Anyone with a few dollars and an internet connection can start trading right away.
That's why the crypto market is the market of choice for millions of amateur traders around the world. Institutional investors, on the other hand, pay particular attention to the crypto market. Many consider it too risky to approach at all, not to mention investing serious capital in it.
Combining these two, the average investor in the crypto market has far less experience and education than most other markets. This means that the crypto market is extremely vulnerable to the hype, FUD (fear, uncertainty, suspicion), and complete manipulation. Cryptographic traders often panic in situations where experienced traders may stay calm.
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