Last Updated on Apr 17, 2020 by James W
Many people get involved in the world of cryptocurrency simply because of the utility of the digital coins. They are either wowed by the way they can make and receive payments from anyone anywhere, or they are impressed by all the different applications the blockchain technology offers them via some of the alternative coins on the market. Yet other people don’t have much interest in that and simply see crypto to make money by investing in it. What those people have likely found out, if they’ve traded in the market for any substantial period, is how difficult it can be to predict the price of any one coin or the market with any certainty.
To an extent, this is true about any investing in general, since the stock market isn’t completely predictable. Otherwise, everyone would be playing it and making loads of money. But crypto stands out in terms of its unpredictability, perhaps because it is still a relatively new asset class, and perhaps because it is something that the market has never really seen before. In any case, investing in these digital coins can be tricky, which is why a trading program like Ethereum Code, which uses artificial intelligence to do the work for you, might be your best bet. Cryptocurrency is so unpredictable as an asset that it’s even hard to even point to the reasons why. But here are three possible reasons.
1. Independence
One of the things that investors are finding out about crypto is that the coins within the market tend to flail about without any tether to other assets. As an example, most investors know that the price of stocks tends to move in inverse proportion to the price of bonds, and they can make judgments on those classes accordingly. But there isn’t any correlation yet with crypto, other than the fact that most crypto coins tend to rise or fall all at once, which, again, generally makes them unique among asset classes.
2. Newness
Another of the difficult things for investors trying to guess the crypto market is the fact that they have very little to go on in terms of past performance. Maybe a few more years down the road, some patterns will emerge that will make crypto price movement a bit easier to guess. But for now, there is a lot of randomness to it all.
3. Sensitivity
Most assets will react to real-world stimuli. Think of how news about a company’s leadership change will affect its stock price. But cryptocurrency seems to far more sensitive to the news in the financial and technology sectors about it, which is problematic because much of the news is overhyped and spun. As a result, the market will often shake violently based on nothing more than unproven conjecture.
Cryptocurrency represents an opportunity for investors to make great gains in a short period of time. But it’s difficult to guess right so that you make those gains, so you better be prepared for a bumpy ride to that prosperity you seek.
