Decoding high volatility in cryptocurrency prices

Despite the global epidemic wreaking havoc on all major economies on the planet, the cryptocurrency sector has continued to grow. During this pandemic, many crypto companies have sprung up to meet the ever-increasing demand for Bitcoin and other cryptocurrencies.

CoinSwitch Kuber, for example, recently announced a $15 million (Rs 109 crore) Series A fundraising round from renowned global fintech investors including Ribbit Capital, Paradigm, Sequoia Capital India, and prominent angel investor Kunal Shah from CRED.

The market capitalization of cryptocurrency, propelled by Bitcoin’s rise, has surpassed $1 trillion. Bitcoin, in particular, has been on a tear for some time and accounts for around 69 percent of the overall market capitalization.

While the cryptocurrency sector has managed to make itself incredibly difficult to predict in terms of price movement, let us attempt to decode how the price of cryptocurrency changes in the market by first studying the bitcoin value and how and why cryptocurrencies move. But first, let’s draw some parallels between Bitcoin and fiat money.


Cryptocurrency Vs Fiat Money: The Comparison

The most significant point of comparison in the bitcoin vs. fiat currency argument is their backing. The value of fiat currency is derived from the fact that the central government declares it has value, and then the parties dealing in the value put their trust in the central government.

Source: Coin Telegraph


Central banks control the total supply of money and consequently inflation in the case of fiat currency. Cryptocurrencies, on the other hand, were created to prevent the central government from having the authority to regulate an individual’s funds. And, because they have a set supply, inflationary devaluation is virtually non-existent. The most crucial influence of crypto market values is supply and demand.


Apart from that, both cryptocurrency and fiat currency have similar properties: they can be used to exchange services and products and they may be used to hold value.


Why do Prices of Cryptocurrencies Fluctuate so much?

Because it is still in its infancy, a single statement answer to the issue of what drives the price of cryptocurrencies would be. Cryptocurrencies are still in their infancy as a market that has yet to discover its set of rational use cases. And as a result of this newness, the market is seeing tremendous volatility, which is mostly driven by investors’ increased experiments to understand how cryptocurrency values change or why bitcoin fluctuates so much.


The shifting Bitcoin value cryptocurrency market price that the famous coin has demonstrated this year is an illustration of this –

Aside from this nascency, there are several other elements that influence the market’s constantly fluctuating bitcoin value.


What is the Cryptocurrency Market Fundamental Analysis?

Fundamental analysis (FA) is a strategy used by investors to determine a resource’s or company’s inherent value. Based on a variety of external and internal criteria, their primary goal is to determine whether a resource or firm is undervalued or overpriced. Investors can then utilize that information to enter or exit investments wisely.


Fundamental crypto analysis entails taking a keen interest in publicly available information about a financial asset. You can look at its use cases, the number of people that are using it, or the team behind the project, for example.

You’ll almost certainly figure out whether the resource is undervalued or overvalued. You can then use your information to advise your trading positions at that point.

The majority of cryptocurrency initiatives aren’t like traditional businesses. You don’t have as much information to sort through with bitcoin price history as you would with typical stock shares.


Factors Affecting the Price Movement of Cryptocurrencies in the Market

The reasons influencing the price of cryptocurrency could range from the current scope of cryptocurrency application to future uses of cryptocurrency coins, as well as a slew of other interconnected components influencing the cryptocurrency space’s development. Here are some of the factors that influence cryptocurrency market pricing.


Coin Utility

Any reputable Blockchain development firm like Pirimid will tell you that to encourage people to hold cryptocurrencies, it must have a compelling use case.

To further understand it, let’s use Ethereum as an example. To execute commands and construct apps on the Ethereum blockchain, you’ll need ETH to convert into gas, which serves as Ethereum’s “fuel.”


As a result, the greater the number of users who conduct transactions and develop applications, the greater the demand for ETH and the higher the crypto market prices. The current price of ethereum is 3585.66 USD. In other words, the greater the role of cryptocurrencies, the greater the market capitalization of cryptocurrencies.


Supply & Demand

The entire amount of Bitcoin transacted on exchanges is a tiny fraction of the total supply in circulation. Bitcoin isn’t constantly available for purchase because the majority of it is maintained as a savings account.

One factor that can influence Bitcoin’s price is user acceptability. A currency’s popularity will boost prices, whereas a currency’s low demand will drop its value. The price of bitcoin is rising due to high demand and limited supply.


Rules & Regulations

The value of a coin decreases if the rules become too strict or repressive. If they are beneficial to the crypto business, on the other hand, they can work as a catalyst for rapid growth. Because Bitcoin is decentralized, that is, it is not linked to anyone central government, legislation affecting investors can have a direct impact on the price. Essentially, the price of BTC can decline if there is anxiety over a specific government statement or decision.



The media has the greatest impact on the price of Bitcoin and other cryptocurrencies, according to several studies. As a result of increased media coverage, the general public obtains a better grasp of cryptocurrencies and Bitcoin. This has the potential to attract new cryptocurrency users.

Increasing Node Count

The number of nodes is another good indicator of bitcoin value. The number of active wallets on the blockchain network is measured by node count, which can be easily found on the internet or the webpage of the respective currency—the more nodes, the stronger the community.

To see if a currency is competitively priced, look up the node count and total market cap of the cryptocurrency and compare them to other cryptocurrencies with similar criteria. This is one of the methods for determining whether a coin is overbought.


The Bottomline

Keeping these variables aside, the rules in place have and will continue to have a significant impact on all cryptocurrency price variations. Currently, the pace with which governments issue rules is severely limited, preventing cryptocurrencies from realizing their broad adoption potential. However, the more rules there are, the greater the adoption and, as a result, the rise in crypto market prices.

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