The cryptocurrency market is very exciting – but it’s also extremely volatile. Because of this, the value of cryptocurrencies can rise or drop at any time. In this guide, you’ll learn the specific causes behind value drops.
Today, many investors and critics are still skeptical about the long-term benefits of cryptocurrency.
Cryptocurrencies aren’t regulated and a prone to sporadic increases and decreases in value. These factors are what make people anxious about investing. However, once you understand what causes a cryptocurrency’s value to drop, you’ll suddenly feel a lot more at ease.
Here’s a closer look:
1. Reduced users
One of the main reasons why a cryptocurrency’s value will decrease is reduced users.
When people start to abandon a cryptocurrency, its market value usually decreases fast.
However, if the number of investors increases, then so will the value.
If you take a look at crypto prices today at okx.com, you’ll see the current value of the main cryptocurrencies. If one of these cryptocurrencies was to suddenly experience a huge drop in users (such as 20%), then its market value would almost certainly go down.
2. The war in Ukraine
The Ukraine war is affecting just about everything, from supply chains to gas prices. Unsurprisingly, it’s also affecting the crypto market.
During this time of economic uncertainty, many people are being very protective of their money and assets; hence, they’re less willing to invest in cryptocurrencies.
3. Interest rates
Interest rates are sky-high around the world currently.
Naturally, this had led to the attention being temporarily taken away from crypto. Instead, investors are looking to other sources to gain higher returns in a less risky way. After all, in these times, nobody can be certain about what the future holds for particular cryptocurrencies. Therefore, investments always pose some form of risk – a risk that investors don’t necessarily want to take at the moment.
4. Public perception
Public perception of cryptocurrency can change at any time.
For example, in the past, Elon Musk has endorsed cryptocurrencies like Dogecoin. As a result, Dogecoin’s value skyrocketed.
However, when bad public events happen (like a particular cryptocurrency crashes), then this can lead to people bailing on other cryptos, which then causes a market drop.
5. The introduction of new cryptocurrencies to the market
Each year, hundreds of new cryptocurrencies enter the market.
This is great for the industry, as it gives people a wider breadth of choice. However, if too many cryptocurrencies become established on the market, it will make it impossible for the vast majority to experience value increases. In turn, this will lead to drops in value as people stick with the likes of Bitcoin and Ethereum instead.
What does the future hold for crypto?
Moving into the future, as a society becomes more digital and internet-reliant, it’s highly likely that cryptocurrencies will become more mainstream. As a result of this, it’s entirely possible that they will become the default currency – but this is at least a decade or so away yet.