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4 Reasons Why Cryptocurrencies Are So Volatile

The world of cryptocurrencies is one of the few places where the lack of surety is what really makes you money. This form of commercial exchange is radically different than other exchanges because the measure of commerce has no basis in the physical world. If you want to make money in cryptocurrencies, you need to be a very observant juggler.

Intangibles Alone

For those who work to make money in cryptocurrencies, the art of the business is to turn real money into digital denominations. In the physical world, gold is valuable because it is

  • rare and hard to find
  • consistent in its behaviors as far as melting and being malleable, and
  •  coveted

In the event that a huge gold deposit is found, it’s unlikely that the price of gold would drop severely because the risk of a gold glut is rare. Cryptocurrencies, on the other hand, swing solely on the laws of supply and demand. Media pressure may push the value of a cryptocurrency up today, but it may also collapse tomorrow.

The Market is Small and Easily Bounced Around

Because cryptocurrencies are still a fledgling or emerging market, market forces can hit it hard. A run-up in one doesn’t have to mean a collapse of another, but the uncertainty can trigger a sell-off as investors dump their current cryptocurrencies to buy the hottest trend.

Experts recommend moving regular stock investments to lower-volatility funds when the market gets volatile, or in industry terms, “frothy”. However, cryptocurrencies are always frothy, which is why your attention as an investor has to be on several points at once.

Timing the Swing

To make money in the regular stock market, experts recommend not trying to time the bounce or swing; the message is that buy and hold is a strong plan for any investor who has some time. However, cryptocurrency investment options are all built on timing the swing, so you will need to be keeping an eye on these investments at multiple points throughout the day. Top cryptocurrency exchanges such as OKEx, Binance and Paxful offer detailed market analysis tools to help investors find the right time to get in and out of particular currencies.

Chronic Speculation

The cryptocurrency market is a bit like the mineral “rush” mentality back when folks were digging for gold, silver, copper and gems. If you struck it rich, you were in luck. However, many who put all of their hopes down one hole soon ran out of supplies, funding, and options.

This is not to say that you shouldn’t be looking at cryptocurrencies as an interesting investment market. What it means is that cryptocurrency investments should use:

  • only money you can lose at the start
  • only profits you have made from your previous investments, and
  •  you should be moving funds into more secure funds as you build up returns

If you lose your initial investment, take a good look at what your investment plan looked like and what failed. Would you be better diversifying your contributions into existing funds and then keeping some in reserve so you can plug money into the next big growth crypto?

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