What’s Behind the Cryptocurrency Price Fluctuations

Cryptocurrency Price Fluctuations
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When it was first launched in 2009, Bitcoin had an initial value of a mere $0.0008. Earlier this year, it reached heights of over $64,000 per coin, meaning that those who got in at the ground level could now be sitting on a fortune worth millions or even billions. However, its meteoric rise has not been without its fair share of hiccups, as well.

Just like all other cryptocurrencies, Bitcoin is highly volatile and subject to the whims of the stock market, meaning that investment into it is potentially more rewarding than more conventional commodities – but also potentially more risky.

Anyone interested in entering the market should take the time to learn crypto inside and out, so as to prepare themselves as best as possible for the road ahead. With that in mind, here’s a brief introduction into some of the contributing factors which affect the fluctuating market value of cryptocurrencies.

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Regulation

Because Bitcoin and other cryptocurrencies are not linked to the central bank of any one country, they are trickier to regulate than conventional forms of payment. At the outset, this meant that many consumers were wary of investing in a currency which did not provide reassurance that their investment would remain safe.

However, increased regulatory attention in the past few years has meant that cryptocurrencies are gaining more trust – and with it, more investors.

Generally speaking, when a nation gives the green light to a cryptocurrency – as the USA, Australia and the EU have done – it enjoys a bump in its value. On the other hand, it can also have adverse effects, as occurred when Turkey banned cryptocurrency payments for goods and services earlier this year.

Adoption

Adoption often goes hand in hand with regulation – if a governing body says it’s okay to use a cryptocurrency, it’s considerably more likely that individual retailers and companies will begin accepting it.

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That’s consistently been the case in the United States, where the Financial Crimes Enforcement Network (FinCEN) have been issuing guidance on Bitcoin since 2013.

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As a result of that authority, several household names now allow Bitcoin transactions on their websites, including software giants Microsoft, sandwich vendors Subway and payment processing platform PayPal. With each new endorsement from an established company, the cryptocurrency receives another jump in public approval, often manifested in a spike in its price.

Current Affairs

It’s one thing for a national government to okay a cryptocurrency and it’s another for a commercial enterprise to accept it, but it’s still at the mercy of the relentless churn of the media cycle.

Just one negative event – such as the bankruptcy of Mt Gox in 2014 or the Ripple scandal of 2020 – can cause shedloads of bad press to fall upon a cryptocurrency, damaging its image in consumer eyes.

Since cryptocurrency value is all about consumer confidence, that can start a tidal wave of sales of the asset, causing prices to plummet through the floor. And because these currencies are still in their infancy and not much is known about them, that kind of chain reaction can take place all the more quickly.

Public perception is the number one factor affecting cryptocurrency value – and it itself is influenced by regulation, adoption and current affairs, among other variables. For that reason, investors in crypto are advised to take heed of the risks before parting with their cash.

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Paschal Okafor is NaijaTechGuide Team Lead. The article What’s Behind the Cryptocurrency Price Fluctuations was written by NaijaTechGuide Team. The article was last modified: April 27th, 2021

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