The market was so green in the morning, then suddenly became long red candle. Why it is so volatile? Let's review the basics.
First, there is a process of mining that occurs to create new currencies and increase the number of coins in circulation. Second, demand for these currencies fluctuates depending on individuals' level of interest and awareness. Third, there's an increase in the market cap and trading volume results from cryptocurrency companies raising capital through Initial Coin Offerings (ICOs). Lastly, bitcoin is secured by proof-of-work concept that requires computer processing power to be spent on solving cryptographic problems.
When supply is limited, price will increase due to higher demand. As long as the mining difficulty is increased, mining difficulty will become more difficult. For example, when the difficulty is increased by 50%, it takes 10 minutes instead of 3 to mine one bitcoin. When you spend your computer's power on solving cryptographic problems, that represents real cost. If this becomes more difficult then it will take longer to mine new coins and demand will become lower.
Because mining difficulty has been increasing, competition among miners has also increased. The mining process becomes harder and it becomes more difficult for smaller miners to mine and compete. When the market is bullish, miners make more money and can invest in better computer equipment and resources to mine crypto. It's a self-feeding upward spiral because the network has value due to people using it as a medium of exchange.
There are thousands of cryptocurrencies out there currently, each with their own purposes and goals. In terms of their price, some are highly volatile, while others have a more stable price. In any market there are currencies that fluctuate more or less than others.
In trading, to get a better return on investment it is advisable to spread your investment across multiple currencies rather than solely investing in one currency. Because cryptocurrency prices within the same coin type tend to correlate with one another, a diversification of investments could help mitigate losses should a particular currency suffer a major fluctuation in value.
Dont rely only on speculation, study the fundamental supply and demand of the coin when you decided to invest, This is a long term game, do not get panic if the market goes down, it is normal.
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