Why Does the Price of Cryptocurrency Fluctuate So Much?

What goes up sometimes comes down (and goes back up).

This post is presented in partnership with NCX.

In the last year or so, many of us went from tilting our heads at the very word "cryptocurrency" to nodding semi-confidently, having achieved a level of basic competency with the concept. (If you're not there yet, read this.)

But the one thing that has left many of us scratching our heads is how (and why) crypto sees such dramatic rises and spectacular falls in terms of value.

Back in 2009, Bitcoin opened the floodgates for cryptocurrencies and, since then, the technology it relies upon (distributed ledger tech known as 'blockchain'), has paved the way for hundreds and thousands of new crypto offerings.

So, why is it so volatile? We asked expert Daniel Garnsey from crypto-trading platform NCX to explain all the ups and downs.

Volatility is mostly caused by speculation.

At the end of the day, Daniel says that the value of a cryptocurrency is really dependent on speculation.

"Speculation in the market is really what's causing a lot of the trade to happen," Daniel says.

"It's [also] a very small market compared to others."

A small market means there's more chance that highs and lows will cause a ripple effect (no crypto-pun intended!) because large buy or sell orders represent a larger percentage of the market.

Speculation works like this: Say someone with a lot of coins in one cryptocurrency sells half their stash. The market is now flooded with that cryptocurrency and, with the supply high, it drives down the price and also makes some people question: Why are they selling so much? Do they know something I don't? 

Positive or negative reporting in the media can also move the price up or down. In the case of negative press, it creates a situation where fewer people want to purchase it, while the crypto owners consider selling what they do have to lessen their losses.

Regulation comes into it as well.

'Regulation' is when governments try to make things safer (legally and financially), and this also comes into play when we're discussing volatility.

Daniel says if there's speculation that a token will or won't be allowed to be traded (due to regulation), the price of the market will be affected.

He reminds us that "the regulation, or lack-of, will lead into speculation."

Timing matters too.

Unlike traditional stock exchanges, which stay open for a set amount of hours per day, the cryptocurrency market is constantly operating.

This isn't a huge factor in what affects the value of the coins. But, unlike a traditional stock exchange, if something happens overnight that affects the market, the price changes in real-time. That means more movement.

Sounds risky. Why should I bother?

It's understandable that many might be put off by cryptocurrencies given how unpredictable it all is. However, Daniel explains crypto is merely a misunderstood industry that's just in its infancy.

"I'd compare cryptocurrency with the dot-com boom," Daniel says.

"People went, 'Oh, the internet, we don't know what to do with it yet, but we know there's something there.' That's where crypto is now."

That doubt created speculation in online company stocks and caused its own kind of market volatility. The market has since matured and is now larger and less volatile.

Time will tell what’s in store for the cryptocurrency market, but if the experts are correct, we may be on the verge of the next major revolution.

You can kickstart your cryptocurrency portfolio with NCX. Find out more here.

Header Image: iStock.com/sorbetto