What makes crypto volatile?

When considering purchasing cryptocurrency, it’s important to learn all variables. Not just the potential benefits of a single coin, but to understand the crypto market as a whole, its fluctuations, and its volatility.

The price of cryptocurrencies can be volatile. These price fluctuations are often influenced by supply and demand, investor and user sentiment, media hype, and government regulations, to name a few. Different from traditional physical assets like gold or silver, crypto doesn’t have intrinsic value, meaning its worth is only based on how much people are willing to pay for it. To note, there may be cryptocurrencies — such as stablecoins — that don’t share the high volatility that some do. Stablecoins attempt to tie their value to an external source, such as the US dollar — like PYUSD does — or the price of a commodity like gold, to secure and back the value of the coin.

What causes volatility?

While it can be tempting to boil a problem down to one reason, cryptocurrency volatility stems from a variety of factors. Each factor can be dependent on another aspect of crypto as well, so the volatility stems from the interactivity of each factor. Below are some main contributors to crypto’s volatile nature.

Crypto is still evolving

The best indicator of the future is the past, but crypto is a younger and evolving form of currency, meaning it may not be as easy to look at its history to give an idea of how stable things will or won't be in the future. So, from updated tech to hard forks, to one day the final Bitcoin getting mined, volatility is created as the market reacts to each new development in the crypto world.

Innovation

Every day, people around the world are developing new cryptocurrencies and apps to advance technology. Some ideas are full of potential, some ideas don't pan out. And because innovations affect the rate of adoption, each success and failure can have a strong impact on the entire crypto market.

Low adoption rates

The reality is that crypto can’t be spent just anywhere — at least not yet. The next big leap for crypto could occur once it's widely accepted by merchants. If any single crypto reaches the point of stable and universal adoption, many believe that market prices will also begin to stabilize.

Decentralization

Traditional currencies have authorities like central banks that can intervene in the market to help stabilize them. Crypto, on the other hand, is decentralized and tends to have larger, more sudden swings in value as a result.