Why do cryptocurrency prices always fluctuate dramatically?

Cryptocurrency is becoming increasingly popular and accepted in mainstream trading markets, while its volatility is also on the rise, with the market constantly fluctuating. This situation is caused by many factors, and any trader needs to understand the reasons for the volatility and how to cope with it.
1. Cryptocurrency is still an emerging investment field
One of the main reasons for the continuous volatility of cryptocurrency is that it is still an emerging industry. Although Bitcoin and other currencies have received extensive media attention, the size of this market is small compared to gold or fiat currency. Even at the peak of the cryptocurrency market, its cap was only $800 billion. Compared to the $9.6 trillion market value of gold, this is akin to pocket change. The U.S. stock market has assets of about $30 trillion. In a small market, a small group of investors can have a huge impact based on their actions. If an investment group decides to sell $100 million worth of Bitcoin, the market will be shaken and crash.
2. Complete digitization
Bitcoin is a 100% digital asset with no backing. Its price is determined by its perceived value. If people are willing, they will pay for it. Supply and demand control this market. If not many people want to buy Bitcoin, its price will drop.
3. Infrastructure is still being developed
Blockchain is still in its early stages of development. Although many companies are using it, there is still a long way to go in building the infrastructure. Scalability issues cause the price of cryptocurrency to decline. On the other hand, certain platforms and applications can cause values to soar.
4. Speculators
Speculators drive the market. They bet on prices, and volatility entices them. Guessing the market only increases volatility. This creates a positive feedback loop of chaotic activity.
5. Good and bad news reported by the media
Whether it is good or bad news about cryptocurrency, media coverage triggers speculation and volatility. Investors and speculators are always searching the internet for information and tidbits to assist their decision-making process. They try to act before the next investor does. They even create algorithms to check news feeds. In many cases, the media publishes a story before even having the chance to verify whether the information is correct. Reporting news based on rumors without any fact-checking only exacerbates the turmoil in the cryptocurrency market.
This article is translated by Chain Catcher, original link: https://www.abcmoney.co.uk/2020/12/10/cryptocurrency-why-it-can-be-so-volatile/