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Why do Digital currencies Fluctuate so Much

Using digital currency is no longer a radical idea in the financial sector. The use of these digital assets, which is known as cryptocurrency, has fundamentally altered the method in which individuals do business. Unlike traditional money, digital currencies have several advantages. Because of this, it should not come as a surprise that a significant number of individuals are interested in purchasing one for themselves. Despite their growing popularity, digital currencies have their share of problems to overcome, with the continuous fluctuations chief among them.

Many factors affect the price of these digital currencies in the market. And a high degree of caution and precision is required to benefit from them. Back in the day, not many people ventured into digital currency trading; however, the continuous improvement in technology provided investors with a way out in the form of Bitcoin auto trading robots like BitIQ. Many reviews online revealed that traders that use this automated trading platform remain immune to the effects of digital currency fluctuations. So, you will be doing yourself a favor by investigating how this Bitcoin robot works perfectly, even with the existence of the reasons discussed in the next section.

Reasons digital currencies fluctuate so much.

Supply and demand

Chief among the factors that cause the regular fluctuations of digital currencies is the issue of their demand and supply in the market. Like any commodity, digital currencies are also affected by the economic state of the market. And the fixed nature of their supply is not helped by the continued demand for them. Since they are seen as a store value commodity, their demand is always high whenever there is an unstable economy. And they lose value whenever their supply seems higher than their demand. This trend continuously recurs hence making digital currencies fluctuate.

Cost of production

One primary means of obtaining these digital currencies is via a mining process. But a lot of resources are required for this strategy to work. It involves using a computer to solve complex equations and determining the next block on the blockchain, after which the miner gets rewarded with some token of these digital currencies. The whole process is made easy and possible since it operates based on a decentralized network.

However, behind the scene, a lot of resources gets consumed. High computing power, which eats up electricity bills, is one of them. Similarly, sophisticated and expensive equipment is required to mine any digital currency successfully. This increases the cost to mine these digital currencies, which necessitates an increase in their value. Now, if the accompanying value is not enough to clear the cost of production, miners often stop mining.

Availability on exchanges

Many exchanges graced the financial market just as digital currencies like Bitcoin and Ethereum. And these exchanges serve as means of trading the currencies. Many digital currencies get listed on these exchanges except for those unpopular, limiting investors’ access to them.

For a price, some wallet providers may aggregate exchange quotes for any combination of digital currencies, increasing the cost of investing in digital currencies. A digital currency traded on a tiny exchange may have an excessive spread if it is not widely traded. And the more exchanges a digital currency is listed on, the more investors are likely to be interested in purchasing it. All else being equal, the price rises as demand increases.

Competition

New projects and tokens are launched every day, adding to the thousands of cryptocurrencies already available. Although new competitors have a low barrier to entry, producing viable digital currency requires a user network. These networks can be built quickly on the blockchain, especially when an improvement is made to an existing application. If a new competitor gains traction, the price of the token used by the incumbent decreases while the value of the token used by the new competitor increases.

Using digital currency is no longer a radical idea in the financial sector. The use of these digital assets, which is known as cryptocurrency, has fundamentally altered the method in which individuals do business. Unlike traditional money, digital currencies have several advantages. Because of this, it should not come as a surprise that a significant number of individuals are interested in purchasing one for themselves. Despite their growing popularity, digital currencies have their share of problems to overcome, with the continuous fluctuations chief among them.

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