Cryptocurrencies ceased to be a financial myth to become an economic tool for many since the profits generated by these Bitcoin Mining in the long term and in the short time.
Volatility is one of the main characteristics of these digital currencies since they do not have regulation or control of any financial or government institution.
This type of digital asset can significantly vary in value; in a single day, it can decrease by more or less 60%, and the next day, multiply its value by more than 10,000%
Although it seems crazy, it is a reality that characterizes the digital market; however, macroeconomic factors do not directly influence its value; several factors are intrinsic to this market.
Aspects that influence the value of cryptocurrencies
When BITCOIN was created, its essence was based on being a way out of the economic and financial crisis that any country could go through. Still, the lack of legal basis has made it difficult to adopt on a large scale.
This has been one of the factors that influence its value. It has reached levels of popularity that were never expected in such a short time since its highest position was reached during the years 2020 and 2021, after the pandemic of COVID19.
Another essential aspect to consider is users’ trust in this digital asset since many countries do not consider them reliable and much less profitable due to a lack of financial support.
Although digital currencies may have particular characteristics that make them even more interesting and whose amount of issuance is limited, they are not backed by any tangible asset, such as gold does not allow many to make their financial investments.
CRYPTOCURRENCIES against fiduciary currencies could be a way out before many limiting situations of the traditional economy; let us remember fiduciary currencies every time a crisis occurs, governments authorize the issuance of a more significant number of coins, but this does not solve the problem.
In summary, the factors that mainly influence the value of cryptocurrencies are the lack of regulation, the low adoption as a digital currency, and the lack of trust in them.
Economic factors that make cryptocurrencies volatile
Just as in the traditional economy, various macroeconomic factors influence the financial development of nations; the same thing happens with cryptocurrencies but from a digital perspective.
The demand and supply of crypto assets are one of the main factors influencing cryptocurrencies’ volatility. On many occasions, their most significant increases are due to the great demand that breaks the balance point that must be maintained in the markets.
Regarding the supply, because Bitcoin has a set number of units that can be issued through mining, it makes few want to sell their units, and the scarcity that usually directly affects the volatility of these digital currencies occurs.
On the other hand, we find the news, but not the report of the general market, but the controversy generated around cryptocurrencies, from the best known to the most recent in the digital market.
The opinions that arise from third parties usually cause various types of effects on digital currencies, where their values can be affected positively or negatively.
Another aspect that, without a doubt, we cannot leave aside are the investors who invest in cryptocurrencies acquiring large amounts to save them and later sell them and obtain a significant profit, this type of investor is called Whales; their wallets are made up of more than 1000 units of digital currencies.
Let us remember that this type of digital asset is highly susceptible to investors’ emotions; every time greed, emotion, and often the fear of losing everything invested are invested, they play with the investor’s psychology and the ecosystem of the digital market.
The various positions generated in this digital market directly affect the value of the digital instruments that make it up, but they remain extremely attractive since volatility can even turn in favor of investors.
Most economists and financial specialists point out that cryptocurrencies are a risk in the financial market, where only young computer specialists and traders who have benefited from this digital economy are the ones who can defend their positions in the face of a new digital financial market that is promoting a new economy.