For Investors — the Cryptocurrency market is like YOU on your periods.
Monumental Spikes and Drops in price could be triggered by something as small as an article.
If you’re thinking of investing into Cryptocurrencies, this article would provide you an insight as to what you’ll be expecting.
Have you ever wondered why long-term Investors who have made their fortunes from the stock market, real-estate markets or traditional businesses are still finding it difficult to invest into Cryptocurrencies?
Or why no matter how much “bitcoiners” are implying that Bitcoin, or other Crypto in this matter would replace the FIAT Currency one day, you still don’t see a lot of Cryptocurrencies being accepted by vendors or businesses as a method of payment?
Before we speak of the reasons, let’s first look at some real-life examples.
Couple of days before this article was written, a Cryptocurrency by the name DOGE COIN got their price to hike by almost 90% because of a viral Tiktok Video.
Few months before it, particularly on March 12 Bitcoin’s price plummetted by 37.5% within a few days due to the news of the Corona Virus outbreak.
On the same day, Ethereum saw their price fall by 30%.
Cryptocurrencies are very sensitive that their price can be easily triggerred significantly by external factors.
What is the science behind it? Why is it that despite their cutting-edge, state-of-the-art technologies they’re still extremely price-sensitive? Let’s dig deeper.
Cryptocurrency vs the Stock Market — The Box Analogy
Crypto Enthusiasts tend to compare Cryptocurrencies with the stock market. How different are they?
Let’s use the box analogy for this.
When you buy the majority of Cryptocurrencies today, what you’re really buying are digital numbers with a bunch of promises, hopes and hype. Like buying an empty box.
What are they backed with? Technically speaking, nothing.
There’s no regulation that ensures their stability, no physical assets that’s backing them up, no real projects run, most of the time no clear transparency and legality and no risk-management strategy.
When the value rises, it sky-rockets. If they fall, they freefall.
When you’re buying a company’s stock, you’re buying a piece of the company itself. What’s inside a company? The employees, their clients, their office, assets, data, performance etc.
If you buy publicly traded stocks, the company has to open their books and be audited; this adds trust and credibility.
Are there risks involved investing into stocks? Definitely. Worst scenario the company goes bankrupt, they can still sell-off their assets and cash out to their investors.
If we’re using the box analogy for this, you’re not buying an empty box. If the value of the box drops, the contents of the box will ensure the box’s value.
The close bond between Trust and Price
When a commodity isn’t backed by stable assets, its value is EXTREMELY reliant on people’s trust.
Think about it.
Let’s say something happens that gets people excited about a particular cryptocurrency. Maybe an article arises, a video about a specific currency or someone holding an event and convincing people to purchase a Cryptocurrency.
When people’s trust increases, the price increases and because of this, trust continues to increase…. And so on. Eventually it snowballs creating an explosion in price and value.
But what happens when negative articles surface on the market?
The same thing. People’s trust reduces, price reduces, which further reduces trust… and it snowballs down.
If we use the box analogy again, it’s like you’re purchasing an empty box with no subsequent value just because someone’s able to convince you it’s valuable.
Unless and until a Cryptocurrency is backed by a subsequent asset, their price will always rely on hype and people’s trust and they will never be stable.
It’s different if you’re purchasing a commodity backed with an asset. Now, the price aren’t just reliant on trust, but on the asset itself.
This ensures stability while at the same time giving room for growth.
The Cryptocurrency market, just like us in our periods (… and yes it applies to both men and women) is hyper-sensitive. Small distraction and you’ll notice massive price fluctuations that’ll drive both you and your investments insane.
Does that mean you can’t succeed investing long-term into Cryptocurrencies? You can, there are a few people who have done it.
But unless you’re able to train your eyes to be sharp enough to spot the absolutely brilliant ones, or you’re willing to sit down in front of the computer all day noticing minute price changes as a trader, you just won’t cut it in this market.
If you’re seeking to invest long term, seek Cryptocurrencies that are backed by real assets and physical projects or you’re better off investing into Stocks, Bonds or Index Funds.