The cryptocurrency market has always been known for its volatility. Since the introduction of Bitcoin in 2009, the market has been known for its massive highs and lows. Those times have since been somewhat stabilized, but recent trends have not been so kind to crypto investors.
Declines within the market have been hurting investors, especially in the wake of the much-talked-about tariffs implemented by U.S. President Donald Trump that have dominated crypto news. Investors are feeling the impact even in the wake of a number of deregulatory moves by Trump regards to the prosecution of crypto businesses.
What factors influence the cryptocurrency markets? Let’s take a deep dive into those factors, recent events that have had a large impact, and what the near future of the cryptocurrency market potentially holds.
Huge Drops Since December
The cryptocurrency market, as a whole, has been in something of a freefall going all the way back to December. Bitcoin is a great indicator of this. At the time, it was trading near its all-time high of $110,000 per coin but has since fallen to around $80,000 or so depending on daily fluctuations.
Since December, the greater cryptocurrency market has seen a loss of $1.2 trillion in market cap. Part of this has to do with the impact of reciprocal tariffs that have been talked about ad nauseum since their announcement. It also has to do with a wider derisking move from traders.
The impact of those tariffs has already been felt in the traditional market. Consumer confidence, which has taken a hit recently, also plays a role in the dip. As investors anticipate risk coming, they move toward safer positions. That is generally bad for the crypto market and investors are hoping to bear down in anticipation of a rebound.
The Biggest Factors Driving Price Movement
Getting a better understanding of the huge swings within the crypto market is something that all investors must do. Whether you have been in the game for a long time or plan on jumping in, there are a litany of factors that can impact the price of cryptocurrency across the board.
Cryptocurrency itself has become synonymous with volatility. We have heard the legendary stories of the rise and fall (and rise again) of Bitcoin but most don’t know the story behind it. The market is driven by numerous factors like regulatory changes, speculative trading, political announcements, and a significant amount of hype. Let’s get into each of the most prominent factors behind the wild price swings in cryptocurrency.
Speculation
Liquidity, as it relates to cryptocurrency, is tied a great deal to speculative trading. More often than not, traders are acting on what they believe will happen next in the market. Current values, particularly that of major coins like Bitcoin, can be tough to get on board with because of the higher values.
Speculation, meanwhile, can lead to significant price swings. The more people react to rumors, news, and general market sentiment, it is not uncommon for assets across the marketplace to have major swings in one direction or another.
Having said that, there are a few considerations to be made about speculative trading. Because people are trading based on what they believe will happen in the near future, when enough people get behind that thought, it can create movement of its own. Throw a bit of leverage into the pot and you have created the perfect recipe for volatility. Many investors also suffer from a serious case of Fear Of Missing Out (FOMO) and panic selling can result. Those factors create huge price movements in the short term.
Politics and Liquidity
Major political events – like a presidential election, for instance – can send waves throughout the cryptocurrency market in terms of market stability and liquidity. Liquidations from entities like Gemini and Mt. Gox had major impacts in the summer of 2024. Even an attempted assassination attempt on Donald Trump created a surge in Bitcoin’s price.
If anything, moments like those should show how happenings in the political world can have a major impact – even if it is short term – on cryptocurrencies. Experts don’t necessarily panic when these major shifts happen but instead target a period where recovery will happen.
Political contributions can have an impact as well. Super PACs like Fairshake have begun to spring up, pouring money into presidential campaigns to support candidates that will act more favorably when it comes to cryptocurrency regulations. That kind of political spending plays a role in the crypto market and can even stabilize it because it offers the potential for rules that will eventually govern the cryptocurrency market.
Crypto Tools
Another contributing factor in the volatility of cryptocurrency are crypto tools and dynamics specific to the market. Through the use of leverage, traders are able to put in larger bets on the crypto market than they would have otherwise been able to with their own capital.
Things like derivatives add yet another layer of complexity to the mix, creating specific opportunities that are a bit more sophisticated, amplifying price movements in their own right. Supply dynamics like “whale” or limited supply holdings can also cause major swings in price when there is a significant shift in demand. Finally, regulatory uncertainty or new regulations can create a bit of chaos within the market, so investors need to alter their expectations.
Regulatory Ripple Effects
Perhaps the biggest impact to cryptocurrency prices has to do with regulatory rulings and implementations. For major currencies like Bitcoin, Ethereum, etc., major regulatory changes can provide stability. Ongoing uncertainties, however, can have a negative impact.
Even guidelines that could potentially stabilize the market may have initial skepticism from investors, leading to a dip in prices. Market sentiments surrounding regulatory shifts can also play a major role in price swings.
Investors tend to react negatively to increased regulatory scrutiny. That is especially true if investors are finding value in the overarching unregulated nature that is built into cryptocurrency. It is all a complex dance that even the most experienced investors have difficulty managing.
Managing Crypto Risk
While many go into the game looking for the next big upswing, a major key to investing in cryptocurrency is to know how to mitigate the risks. But how can one possibly mitigate the risks when the landscape, as a whole, is so volatile.
For startups, there is the need to comply with local regulations. Staying on the right side of the law is crucial. For individual investors, taking a diversified approach when it comes to asset classes, not to mention thorough research, can be a crucial move.
Secure storage is critical. While exchanges are more convenient, they are susceptible to security risks. Even the biggest exchanges in the world have fallen prey to hacks. Cold wallets are the most secure option available because they aren’t constantly tethered by an internet connection.
Invest in cybersecurity technologies where you can as well (remember diversity). Do your homework and perform thorough portfolio diversification and market analysis. You won’t be able to entirely avoid falls in the market place, but you will be in a much better position to react to those changes and come out better for it in the end.
