Do you want to know why cryptocurrencies can rise by as much as 40% in one day and drop by as much as -40% the next day??

Read this article. I explain everything in it.

Hello! I will try to explain this to you in a simple way.

Cryptocurrencies like Bitcoin, Ethereum, and others are known for their prices being able to jump significantly up and down in a short time – sometimes even by 40% in one direction or the other within a single day. This phenomenon results from several key features of the cryptocurrency market:

1. High Volatility: The cryptocurrency market is relatively young and still has less stability than traditional markets, such as stock exchanges or fiat currencies (like zlotys or dollars). There is no central regulator, like a central bank, that could stabilize rates, so prices depend solely on supply and demand.

2. Speculation: Many people buy cryptocurrencies not to use them, but to make a profit. When good news arises (e.g., a large company accepts Bitcoin or Elon Musk tweets something), people buy en masse, which drives the price up. Conversely, bad news (e.g., bans in some country or a stock market crash) can trigger panic and mass selling, leading to sharp declines.

3. Low Liquidity Compared to Traditional Markets: The cryptocurrency market has less money flowing through it than, for example, Wall Street. This means that if someone places a large buy or sell order (the so-called “whale”), it can significantly affect the price, as there aren't always enough buyers on the other side of the transaction.

4. Emotions and FOMO: Cryptocurrency investors often act on emotions. “FOMO” (Fear of Missing Out) causes people to rush into something that is rising, while “panic” drives them to sell when prices drop. This fuels these violent movements.

5. Impact of News and Media: Cryptocurrencies are very sensitive to news. For example, if China “bans Bitcoin” again (which happens from time to time), prices may drop. On the other hand, rumors about a new Bitcoin ETF in the USA can trigger euphoria and a price surge.

6. Market Manipulation: Since the market is not yet fully regulated, there are situations where large players (e.g., funds or wealthy investors) intentionally pump the price (the so-called “pump”) and then sell for profit, leaving others with losses (the so-called “dump”).

Example: Imagine Bitcoin costs $50,000. If suddenly Tesla announces it has bought BTC for a billion dollars, the price might jump to $70,000 (+40%) because everyone wants to get in on the rise. But if the next day news breaks about a hacking attack on a major exchange, people will panic, sell their Bitcoins, and the price may drop to $42,000 (-40%).

Summary: These spikes and drops are a combination of speculation, emotions, low liquidity, and reactions to external events. That’s why cryptocurrencies are so exciting but also risky. If you want to invest in them, it’s worth being prepared for these swings and not reacting to every price change.