Whether you’re an experienced investor or you’ve never spent a dime on the stock market, you’ve likely heard of cryptocurrency. Ranging from the rapidly growing Bitcoin to the meme-centric Dogecoin, crypto has taken the stock market by storm. However, there seems to be a common trend as they dip and rise with one another.
Cryptocurrencies fluctuate together because they’re directed by mass online interest, big investors dipping into every crypto, and widespread speculation. Crypto currently has little to no true value, which means it doesn’t represent a company or real currency, so people panic sell if it drops.
In this post, we’ll talk about why cryptocurrencies seem to go up and down with each other. We’ll also discuss which cryptos are the primary directors of the metaphorical cryptocurrency traffic stream, how you can predict which direction it’ll go, and more.
Cryptocurrency Has No Intrinsic Value
Contrary to what many online investors want you to think, there’s no real value behind any cryptocurrency. While Bitcoin and Dogecoin are accepted by a handful of companies, they’re backed by the US dollar. If they dip, people can lose a ton of money. The US dollar is unlikely to experience similar fluctuations.
A stock that’s not representative of a company or real currency will experience extreme volatility. Since all crypto falls in the same boat, people often pair them together. When one drops, all of them experience dips; When one or two rises, the rest of them follow suit.
That’s not to say there haven’t been exceptions. For example, Bitcoin took off like a rocket ship in 2020, while Dogecoin didn’t join the party until a year later, in 2021. Nevertheless, Dogecoin’s value isn’t anywhere near Bitcoin. The fluctuations were merely similar in terms of a percentage increase.
Online Interests Direct the Crypto Market
According to Telegraph, one of the primary reasons cryptocurrencies fluctuate together is they’re all driven by online interest. Whether Elon Musk sends out another tweet about Dogecoin or a Redditor breaks down their unique stock market science of why Ethereum is the next big crypto, people jump on board.
Crypto simplifies the stock market for those who don’t understand it. There’s a lot of technical jargon involved with stock market exchanges, intimidating those who haven’t read about it. Cryptocurrency is very straightforward, letting even the most amateur investor know what they’re doing (for the most part).
Rather than buying a share of Apple, Disney, or another big company, you’re simply purchasing a digital currency. When it goes up, you can sell it for profit. Unfortunately, this same hive mind way of thinking has also driven crypto prices down, causing people to lose money.
Bitcoin Directs the Crypto Curve
Sendwyre shows that Bitcoin and Ethereum direct the crypto fluctuations. Very rarely will you see Dogecoin, Litecoin, or another crypto take charge. When bitcoin goes up, people want to invest in all other cryptos. As it goes down, many of them panic and sell all of their shares in hopes that they don’t lose too much money.
The bad news is that crypto doesn’t have a remotely predictable trajectory. We can assume well-established companies like Samsung and Volkwagen will slowly grow in the coming years, leading their stock prices higher. However, crypto can shoot to thousands of dollars per share or less than a penny per share.
While this fact might be a bit scary for those interested in the crypto industry, the good news is some major companies are beginning to accept Bitcoin as a payment. Many people speculate other well-known cryptocurrencies will soon join the process. If they’re set in stone as a viable payment option, there’s a potential for reliability and reduced volatility.
Big Investors Hold a Variety of Cryptocurrencies
Any time a big investor pulls out of a company they’re invested in, the stock could fluctuate by a few dollars. There are so many people invested in major brands that the difference can often become negligible (unless they’re considered a partial owner).
That being said, the opposite is true when it comes to the crypto market.
Here’s why one investor can have a huge effect:
- Assume the investor owns 10% of Dogecoin, Bitcoin, or another known cryptocurrency.
- They sell all of their shares as the crypto goes up, making massive profits.
- Once they sell their 10%, the currency will drop significantly.
- People see a sudden drop, panic that the peak has been reached, and sell all of their crypto.
- More people see this in the coming hours, days, and weeks; Thus, the currency drops drastically.
Since crypto is often driven by the previously mentioned online mass interest hive mind, one or two cryptos dropping will send everyone into a selling frenzy.
The Crypto Market Is Always Open
Perhaps one of the most understated reasons the crypto market changes so often is because it’s always open. Most stocks are open from Monday through Friday between 9:30 AM to 4 PM. Student Edge shows the 24/7 mayhem of the crypto market can lead people to sell before going to bed because they’re afraid they’ll wake up to nothing.
Many people often make the mistake of thinking the weekend will boost cryptocurrencies because there’s nothing else to trade. However, it’s usually a time for holding or selling, letting the investor switch to the traditional stock exchange when Monday comes around.
Crypto Is Still New and Developing
As with any new financial industry, cryptocurrencies will likely experience volatility for a while. Every investor has a bit of nervousness since there’s a chance they could become rich or lose everything they’ve invested.
Remember, the main rule of investing is only to spend what you’re comfortable with losing. Cryptocurrencies move together, but that doesn’t mean they’re predictable, reliable, or a guaranteed way to make money. That being said, the crypto market can provide a fun, educational method of investing for beginners and experts alike.
Now that you know why cryptocurrencies fluctuate together, you can plan your portfolio accordingly. Remember, it’s best to invest in cryptocurrencies that have backing from big companies and investors since they’re much less likely to experience extreme volatility or drop to a valueless stock.