Insufficient liquidity and high volatility can be deadly combination

Cryptocurrency is a virtual currency. Digital cryptography is used to create and transact new coins. Cryptocurrencies like Bitcoin and Ethereum are immensely popular because they are decentralized, secure, and anonymous. As no central banking system, the government is involved in mining transacting digital assets. The digital cryptographic method ensures the security, reliability of Blockchain based cryptocurrencies. Cryptography is an intricate mathematical and computational method of encoding and decoding data. Cryptography ensures pseudo or complete anonymity and security of all transactions and beneficiaries. It also guarantees a shield from double spending and autonomous operation devoid of any financial regulatory body.

Cryptocurrencies are high risk trading instruments traded at different Crypto Exchange. Price discovery of cryptocurrencies is difficult as it is a new phenomenon compared to fiat currencies. Fiat currencies are issued regulated by governments and declares to be legal tender. Therefore, cryptocurrency trading is suitable for traders who have high risk taking capacity and looking for high reward trading instruments.

38% are active readers

The University of Cambridge conducted two empirical studies on the cryptocurrency market. Out of one hundred thirty-nine million crypto wallets, only 38 %( 52.8 million) are active as of 2019. More than 52% of cryptocurrency companies operate in two or more cryptocurrency industry sectors. Most service providers, almost 84% offer support for Altcoin since 2017. An Altcoin is referred to as cryptocurrencies other than Bitcoin. The median number of employees per Cryptocurrency Company is twenty, and employment opportunities grew by 164% from 2017 to 2018.

Blockchain is a digital ledger

If you are familiar with cryptocurrency, then you must have heard about Blockchain. It is the technology that gives cryptocurrencies unique traits and value. Blockchain is a digital ledger that stores the transaction details of each and every cryptocurrency. From a virtual point of view, it is like a sequence of programmatic blocks. Each block is scripted with transaction details such as; time, date, amount, and beneficiaries involved. A sequence of blocks is called a chain. Bitcoin Blockchain is decentralized; a single person or group does not control it, collective users have the ownership. Data in decentralized Blockchain is immutable; once encrypted, it cannot be written off. For Bitcoin, the data is irreversible, permanent, and publicly viewable.

Factors that affect the price movement

Factors that affect the price movement of cryptocurrency are very dissimilar to those that influence the price movement of fiat currency. Steep rise and the deep plunge is a typical attribute of the cryptocurrency market. Extreme volatility has a negative consequence in the market-leading to chaos, indecision, and loss. Volatility in cryptocurrency is a different league as there is no benchmark index to measure the volatility. If you observe historical charts of cryptocurrencies, the high apex and cavernous troughs occur more rapidly and in more intense space compared to traditional trading instruments.

News development and speculation are the prime reasons for wild swings in the cryptocurrency market. But the effects of this stimulus are more exaggerated in the crypto market as liquidity in Crypto Exchange is low compared to the conventional financial market. Lack of large trading firm and instructional investors create illiquid, shallow market depth. Insufficient liquidity and high volatility can be a dangerous combination as both complements each other.