Essential Guide to Cryptocurrency for Beginners – Forbes Advisor Australia

The cryptocurrency market is infamous for its extreme volatility, with frequent, significant price shifts occurring rapidly. Such unpredictable movement is due to several crypto-specific factors.

The key reason behind this volatility is the market’s relatively limited size compared to established financial markets. Although the market cap of cryptocurrencies has grown, it remains around $US2.4 trillion, which is considerably small when viewed alongside the valuation of the global stock market. This means that market prices can be heavily influenced by modest shifts of capital, with sizeable trading orders having the potential to provoke notable market fluctuations.

Moreover, the perpetual operation of the cryptocurrency market adds to its instability. In contrast to traditional stock markets which have fixed opening hours, the crypto market operates round-the-clock. This leads to more sporadic price changes, especially during times when trading volumes are lower, and can be exacerbated by any time-of-day news and events that may provoke sharp pricing movements that would be more contained within a scheduled market environment.

An additional feature of the crypto market is the low barrier of entry, as evidenced by the existence of over 2.4 million cryptocurrencies. It’s relatively straightforward to launch a new coin or token, which although fostering innovation and broad participation in cryptocurrencies, also introduces the potential for market oversaturation and increased investor confusion. This environment can be conducive to schemes that manipulate market prices, such as pump-and-dump strategies.

Unclear and evolving regulations around cryptocurrencies also play a role in the sector’s unpredictable pricing. As countries and jurisdictions work on establishing their regulations, announcements and shifts in governmental positions regarding cryptocurrencies can precipitate marked changes in the market.

While some traders may find opportunities in the market’s volatility, it also poses considerable risk. Investors should exercise due diligence, research thoroughly, and commit to investment only within their loss tolerance limits. Although some speculate that market stability may improve with increased adoption and maturity, for the present, volatility remains a hallmark of the crypto market.

This content does not serve as an endorsement of any specific cryptocurrency, trading platform, or exchange, nor is it intended to recommend cryptocurrency or CFDs as investment vehicles. Cryptocurrencies are not regulated within Australia, and therefore, there is a risk to capital investment. Trading CFDs carries a higher risk than regular share trading and presents the possibility of partial or complete capital loss. Prior to trading CFDs or cryptocurrencies, one should carefully consider their financial ability to absorb losses and obtain advice from a qualified financial advisor.

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