2.2.0. Impatience
Hodling means you are keeping your cryptos despite the ups and downs of market movements. The prices of cryptocurrencies can surge to an all-time high and in the next few minutes drop to an all-time low.
Not many people can withstand the emotional turbulence to see their money move to thousands of dollars and only to crash to few hundred within few hours. Hence, the advice is that you shouldn’t invest what you cannot afford to risk.
In 2017, the price of one Bitcoin rose to about 18 000 USD and then by first quarter of 2018, it crashed to about 3 000 USD! Many people who did not understand the dynamism of the Crypto Market panicked and sold off their Bitcoins.
Today (April 2021), the same Bitcoin is above 60 000 USD. Those individuals who kept their Bitcoin through the ups and downs of market movements reaped huge financial profits.
Still, we are at the infantile stage of the Crypto Market. Prices of cryptos will still go far higher. In fact, the general consensus in the Crypto Market is that someday, and very soon at that, one Bitcoin will be worth one million USD! Thus, a price of 60 000 USD is still at its infancy.
2.2.1. Why the Fluctuations in Price?
You may wonder, “Why is there such fluctuation and volatility in the prices of cryptos?” The answer lies in the economic forces behind the market:
(a). Small Market Capitalisation
The market capitalisation of the entire Crypto Market is under 2 trillion dollars as at August 2021, falling from its all-time high of 3 trillion dollars just about 4 months earlier. Compare this with the 2.4 quadrillion dollars market capitalisation of the forex market and 89.5 trillion dollars market capitalisation of the world's stock market exchanges.
In fact, the market capitalization of gold is currently around 11.46 trillion dollars. The market capitalization of the USD is 33.89 trillion dollars. By comparison, Bitcoin, which is the largest product in the Crypto Market with 44.10% market dominance, has a market capitalisation of a mere 882.5 billion dollars as at August 2021.
Do you understand what these statistics mean? It simply means the Crypto Market is at its infancy. There is a large room for growth. Hence, any price you see now is still quite small. If Bitcoin is now about 50 000 dollars, what do you think its price will be when its market capitalisation reaches the level of today’s gold?
Because the total market capitalisation of cryptos is small, any trading with large sums of money will shake the prices of cryptos. ‘Hope you understand this very well! If you do, you won’t become scared when there are fluctuations in the prices of crypto as long as you intend to hodl for a long time.
(b). Market Forces of Demand and Supply
Cryptos are decentralised, hence, their prices are determined purely by market forces of supply and demand. What affects the supply and demand include the crypto’s use cases, circulating coin supply, transparency of the development team, advertisements, etc.
These factors affect the price movements of cryptos. The Analytical Technique utilises all of these details in forecasting the viability of a crypto. In fact, the SOC has developed a Crypto Scorecard for the Analytical Technique with which you can safely forecast the future of a crypto. The Analytical Technique’s scorecard is discussed in the Tertiary School of SOC.
Note that, just as it is in the forex market, stock exchange market, and other markets, some criminals attempt to manipulate the prices of some cryptos to make quick gains; this is especially common for cryptos with low market capitalisation. However, having good knowledge of the Crypto Market will help you to spot such unwholesome manipulations, and this is one of the benefits you will get by studying with the EdaFace SOC.