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Cryptocurrencies have endured their fair share of ups and downs and are still evolving. Confidence in the economic future of cryptocurrencies is growing, but the market is still risky.
If you want to understand the cryptocurrency market better and be able to make sense of some of its movements, knowing what to watch for is a good first step:
For years now there has been a lot of hype in the cryptocurrency market. Predictions about surging prices are all too common. While the hype isn’t necessarily a bad thing, the fact that it can cause significant fluctuations in the market is a risk. The hype itself can make the price of a cryptocurrency surge, but it can also bring it crashing down.
Overall the cryptocurrency market is very volatile. Fluctuations in the price of cryptocurrencies are not only frequent but also much higher than most other markets.
There are many reasons why the market is so volatile. The biggest problem is that the market is much smaller in size compared to established forms of currency. This means that even small movements of a cryptocurrency can have a pronounced effect on its price.
Many smaller cryptocurrencies suffer from low liquidity – as did Bitcoin in the not too distant past. It contributes to the volatility of the market, seeing as there is the risk of price manipulation or a big player influencing the price heavily with a single massive sale. Cryptocurrency wealth distribution is even more skewed than that of traditional wealth, only a few with large stakes in a cryptocurrency, also called bitcoin whales, can hold disproportionate amounts of power over its pricing.
Fortunately, as time goes by this risk tends to get lower. That being said it remains high in new cryptocurrencies until they’re able to gain more acceptance and popularity.
In the last few years, there has been a sharp increase...