Why Does the Cryptocurrency Exchange Have Sharper Ups and Downs?

While the cryptocurrency market provides investors with great profit opportunities, it also offers great risks of loss. Cryptocurrencies have become quite popular in recent years. harsh ups and downs While it opened the door to wealth for some investors, it led to bankruptcy for some investors.

Although ups and downs can also be seen in stock markets, this situation is not as severe as in cryptocurrency exchanges. The main reason behind this situation is volatility

So what is this “volatility”?

The term volatility, which means the fluctuation in prices, is the change in prices in financial markets. degree of uncertainty and variability It is a concept that expresses.

Volatility of an asset or market is the price of that asset or market. How fast and over what ranges? shows that it has changed.

Cryptocurrency markets In markets with high volatility, such as, prices change rapidly and greatly. In such markets, rapid price movements and unexpected market conditions are witnessed.

stock markets It is a market with lower volatility than the cryptocurrency market. For this reason, more limited price changes are observed and it hosts a more predictable environment compared to the cryptocurrency market.

One of the reasons why the cryptocurrency market is volatile is that it is a new market.

Firstly new and immature Since it is a market, faster price changes are seen in cryptocurrencies. Because the level of experience in the market is lower than in the stock market.

In addition, it is a process that takes time for the prices of financial assets to settle and become more stable in all markets. In the investment world price discovery In this process, called cryptocurrencies, it is possible to see volatility in cryptocurrencies until investors agree that cryptocurrencies will be a long-term investment tool.

The biggest difference between crypto money and stocks: Decentralization!

Due to their decentralized structure, the cryptocurrency market is as tight as the stock market. not subject to legal regulations. For this reason, lack of regulation and uncertainty can create drastic changes in prices.

For example, implemented in Borsa Istanbul floor and ceiling price system It has an application. This practice limits the price levels that traded stocks can rise to within +10% and -10% during the day. In this way, high volatility and risk are prevented.

This app only Unique to Borsa Istanbul. However, although there is no such limitation in other exchanges, there is less volatility in these exchanges compared to the cryptocurrency market. The reason for this is the immaturity of the market, as we mentioned before, and other reasons that we will talk about shortly.

Applied to broad market indices and stock markets “circuit breaker”is another practice implemented to keep the markets under control. The circuit breaker temporarily halts trading if prices reach predetermined levels. In other words, it is used as an emergency method and aims to protect investors from panic sales in case of any panic in the markets.

In summary, in the cryptocurrency market Lack of legal regulations and intrusive practices It causes prices to fluctuate more freely.

And of course, when it comes to financial markets, the most basic reason: Supply and demand balance.

First of all, the cryptocurrency market, compared to the stock market smaller Therefore, even a relatively small investment in the market can significantly affect prices.

Additionally, the value of cryptocurrencies is often Because it is based on speculation and market sentiment This causes rapid and unexpected price movements in the market.

As we mentioned before, the fact that the market is not yet mature makes it very sensitive to the feelings and thoughts of investors. For this reason, due to the uncertainty the cryptocurrency market contains, investors’ expectations shapes prices to a large extent.

Finally, unlike stock markets, cryptocurrency markets 24/7 transaction capability It also allows sudden changes in prices at any time.

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