Cryptocurrency Exchanges Grapple with High Demand and Technical Challenges Amid Market Volatility (2024)

FAQs

What causes high volatility in cryptocurrency? ›

The Bottom Line. Bitcoin prices are volatile for many of the same reasons other investments are—supply and demand and how investors react to hype, news, and regulatory actions. The main difference between bitcoin and other investment prices is the magnitude in which its price changes.

Large fluctuations in the price of many cryptocurrencies mean that their purchasing power is not maintained over time, reducing their effectiveness as a store of value.

Stocks are often volatile, but they tend to be less volatile than crypto. Individual stocks are more volatile than a portfolio of stocks, which tends to benefit from diversification.

Stop-loss Orders:

This is particularly important in the volatile cryptocurrency arena, where prices can drop rapidly. Most cryptocurrency exchanges offer the option to set a stop-loss. For example, if an investor bought Ethereum at 2000 USD and wants to limit the loss to 10%, they should set a stop-loss at 1800 USD.

Portfolio Diversification: Diversifying cryptocurrency holdings across different projects and asset classes spreads the risk and reduces the impact of price swings of a portfolio. Staying Updated: Staying informed about the latest news and developments in the crypto market can help keep ahead of market trends.

Unsurprisingly, Bitcoin emerged as the most volatile cryptocurrency, experiencing a staggering $26,741 surge between its lowest and highest values. From $20,195 in Mar. 2023 to $46,936 in Jan. 2024, Bitcoin's rollercoaster ride highlighted the extreme nature of the cryptocurrency market.

Broadly speaking, some of the most volatile markets you can trade are: Cryptocurrencies. Commodities. Exotic currency pairs.

Attempting to hide cryptocurrency from the IRS is illegal and can result in serious penalties, including fines and imprisonment. Exchanges such as Coinbase, Binance.US, and Crypto.com report customer data to the IRS, while many international exchanges like KuCoin, OKX, and Bitget might not.

The world's first cryptocurrency, Bitcoin, has the largest market capitalization. Its established network, limited supply, and growing institutional adoption make it a relatively safe haven in the volatile crypto market.

Yes, you can write off crypto losses on taxes even if you have no gains. If your total capital losses exceed your total capital gains, US taxpayers can deduct the difference as a loss on your tax return, up to $3,000 per year ($1,500 if married filing separately).

Who controls the value of cryptocurrency? ›

Instead, each market or exchange determines its price based on supply, demand and other factors, such as technological advancements, security measures and regulatory developments.

However, in a volatile market, where prices are moving rapidly, an upside breakout can be followed by an immediate and substantial run to higher prices. This type of potential is the primary reason to trade breakouts in a volatile market environment.

Political and economic factors

Monthly jobs reports, inflation data, consumer spending figures and quarterly GDP calculations can all impact market performance. In contrast, if these miss market expectations, markets may become more volatile.

Factors Affecting Volatility

Changes in inflation trends, plus industry and sector factors, can also influence the long-term stock market trends and volatility. For example, a major weather event in a key oil-producing area can trigger increased oil prices, which in turn spikes the price of oil-related stocks.

Volatility and risk are usually used as interchangeable terms. Highly volatile currency pairs tend to have higher levels of market risk. Some investors prefer highly volatile currency pairs because of their potential for high rewards.