Any tender of entity’s price is usually governed by the acceptance level and the trust of the community towards that entity. While many people might tell you its gold or petroleum or any other real-world entity backing the entity, but the truth is acceptance and use.
Bitcoin was the first cryptocurrency which started at a value of $0 and as the time progressed and people realized the potential that the coin possessed and started to use it, the market valuation grew as well. This has been the case for any entity.
Cryptocurrency space was often on the receiving end of the investors and analysts because of its volatility, but what many did not take into consideration is that the concept and technology is relevantly new, and just like any other new tech or entity, it went through a cycle of ups & downs before stabilizing in 2018, all thanks to the longest crypto winter.
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Early Cryptocurrency Pricing Was Controlled by PR Buzz
In its early stage when the phenomenon of Distributed Ledger Technology was not that widely known, the price of the crypto was mainly determined by the PR and Media buzz which is quite common for any entity. A good media report can take the prices up while a piece of negative news surrounding the entity can take tumble the prices.
However, it is interesting to know that when Mt. Gox debacle happened quite early into the Bitcoin existence and with so much skepticism surrounding it, many thought this was the end of another phenomenon. But, Bitcoin defied all odds to not only come back but come back much stronger. This made many early adopters realize that the cryptocurrency is here to stay and guess they were not far from the truth as they reaped the riches during the 2017 price peak.
The volatility in the prices is not something out of the blue or a phenomenon which the world hasn’t observed with any other new technology. Take Amazon, for example, its prices fell by 95% in its early days. and people were pretty confident that it would fail. Guess, who had the last laugh, Jeff Bezos is still reaping the riches of his early investment.
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Why A Backing Of Real-World Reserve is Not the Biggest Factor in Determining the Prices
While many believe an entity especially a financial one, need to be backed by a real-world reserve like gold or petroleum to ensure some stability, but it’s not necessarily true. Despite the backing of a reserve. many fiats have seen their price and value go down the drain. Hyperinflation has seen Zimbambe and Venezuela’s currency become so useless that it’s not even worth the paper it’s printed on.
Thus, the backing of a reserve does not necessarily guarantee price stability, it’s often how people perceive it and how many accept the entity as their daily driver.
Crypto space suffered dearly in terms of prices and markets valuation during the last bearish market which cut down the prices of the majority of the cryptocurrencies by 80%. However, the last bearish market was not all bad, as it also ensured that the volatility factor and bubble like behavior are reduced significantly.
Thus, a loss in market capitalization has ensured more trust in the crypto market, so much so that the traditional investment firms, who were among the biggest critiques have come around to join the crypto bandwagon. As they say, “If you can’t defeat them, join them.”
Market Manipulation By whales is Still a Concern
Crypto markets have one shortcoming when compared to the traditional markets, it’s not well organized and streamlined. While traditional markets usually list the shares of one company on a single exchange, which makes it quite easy to look up and cross-check a plethora of information related to the particular stock, same can’t be said for the crypto trade market.
Each token is listed on several exchanges and there are no universal parameters to compare, and this is the reason the prices of the same crypto token may be different on different exchanges. This makes it easier for whales to manipulate the market and the privacy feature makes it tougher to track down such manipulation in time.
However, the crypto space is quite determined to counter every problem that comes its way and thus many exchanges have joined hands with market monitoring tool makers to bring down the manipulation.
The prices of cryptocurrency and any other entity are solely driven by its acceptance and trust of the community towards the entity. Cryptocurrency has proven this over 10 years of its existence, with no real-world reserve backing it.
Cryptocurrencies have gained the trust of people through its continuous hustle of achieving a decentralized financial ecosystem through technical refinement.
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