The digital world of cryptocurrency is full of uncertainty and volatility. It is this uncertain nature that makes it so interesting to investors and enthusiasts alike. There’s no knowing whether, or when the prices of a digital currency may go up or down, and what’s the best time to sell. If you are in a similar situation or perhaps want to get in on the business, it is important to understand how cryptocurrency prices work, and where to find the latest (and most authentic) rates.
Cryptocurrencies vs. fiat currencies
Cryptocurrencies, just like fiat currencies that most governments in the world use, are not backed by any gold or oil reserves (or anything that can provide any tangible value to them). The currency notes you have, however, are backed by your central government’s trust. If the government says a certain piece of paper is worth $10, then everyone has to trust this derived value of the paper. And it works for the most part.
Cryptocurrencies are not backed up by any central body, which makes them so volatile. Furthermore, since governments control the supply of fiat money, they can also control inflation, whereas cryptocurrencies are usually limited in supply, so they are not devalued through inflation.
Now that we know how similar cryptocurrencies are to fiat currencies, let’s take a look at why their prices fluctuate so much.
Why determines cryptocurrency prices and why do they fluctuate?
At the most basic level, cryptocurrency prices are governed by supply and demand, one of the most fundamental concepts of the economy. If the supply is high and demand is low, prices will go down. Conversely, if the demand is high but supply is low, prices will sky-rocket. Crypto-coins are always limited in number; for example, Bitcoin has a supply capacity of 21 million, which means only 21 Million of them can exist in the entire world. Once all are mined and people stop trading, the price of Bitcoin will go up.
Supply and demand depend on factors such as publicity. If a certain currency gets positive reviews and media coverage, it starts getting traded in more volume, thus increasing in price. The converse is also true.
Another major reason for fluctuation in cryptocurrency prices is that it is still a very new market, and has a very small overall market capitalization. To understand this, let’s take a look at volumes. Daily cryptocurrency trading sums up to about $14 Billion, whereas daily forex trading accounts for almost $5 Trillion. Similarly, the total cryptocurrency market capitalization is around $216 Billion (it hit a peak of $890 Billion last January), whereas all the money in the world sums up to about $90 Trillion. Cryptocurrency, despite its hype, is still in its infancy.
Where to find the latest cryptocurrency prices?
CoinMarketCap is a good source for finding out the latest cryptocurrency prices. CoinDesk and Coinbase are also reliable sources of information. Remember that prices of each currency might slightly vary on these platforms because of differences among crypto exchanges.