When an individual purchases an asset whether it is a commodity, real state, cryptocurrency or any other asset in the hope that it will become more valuable in the near future it is known as speculation. In the world of finance, speculation engages the investors in a risky financial transaction in attempt to gain profit from the short-term fluctuation in the market value of a tradable financial instrument. The traders, who believe in speculations, do not care about the long-term financial gains such as dividend, capital gain, or interest. By this article, we are trying to explain, speculation and its Relation to the Cryptocurrency market.
Cryptocurrencies are the hot assets these days and attracting speculators who are interested in the short-term gains. If you are looking forward to investing in cryptocurrencies, check out our post Top 5 Cryptocurrency to Invest in 2018. The post will guide you, which are the top performing cryptocurrencies. By investing in these cryptos, you will be able to maximize your wealth.
After the boom of 2017, when the top cryptocurrency Bitcoin along with other cryptos shown a massive growth, they become one of the favourite investment avenues for the traders who want to get rich quickly. Speculators usually do not pay attention to the fundamentals of a security or asset and instead focus on purely on the price movement. Speculators are common in the markets for stocks, bonds, derivatives, commodity futures, currencies, real estate, collectables, and fine art. Usually, speculators play some primary roles in the financial market including
Hedgers: Hedgers usually engage in financial transactions to offset some pre-existing risks.
Arbitrageurs: They seek to make a profit from the situations where fungible instruments trade ate different prices in different markets.
Investors: Investors are the one who seeks profit through long-term ownership of a financial instrument’s underlying attributes.
The United States Commodity Futures Trading Commission says that a speculator is a trader who does not hedge the funds but trade with the objective of achieving high profits with the successful anticipation of price movement. The agency believes that speculators serve essential market functions, but the excessive speculation is harmful to the proper functioning of the financial market.
Its Relation to the Cryptocurrency market
Cryptocurrencies emerged as one of the best options for investment. To know more about cryptocurrencies as an investment option, check our article 7 Reasons Why You Should Invest In Cryptocurrency. In this article, you will get the in-depth knowledge about the cryptocurrencies and what they offer as an investment option.
The price of Bitcoin was $170 in January 2015, and in July 2017 its value was $2772. Because of the extreme price fluctuation, Bitcoin presents a huge possibility for speculation.
One of the main advantages of investing in cryptocurrencies is, investors can trade Bitcoins infractions, and this makes Bitcoin and other cryptocurrencies an easy target for speculative gains.
Excessive speculation is not good for any asset as the speculations can push up the value of an asset and can also deflate the asset as quickly as it was inflated. During the phase of dotcom bubble, the valuation of the companies which had adopted dotcom technology skyrocketed and when the dotcom bubble burst most of these companies crashed.
The speculative investors hope to make huge profits out of cryptocurrencies that is why they buy and sell digital assets quickly. These kinds of transaction affect the crypto market and cause short-term swings. Speculative investors who hold a large amount of a given currency can have a significant impact on the cryptocurrency market. If you are looking forward to investing in cryptocurrencies and want to know what other factors cause price movement in cryptos, then check our previous post, What Factors Create Movement In Cryptocurrency’s Prices.