Why do Crypto Prices Fall.

If you’re like me, you check your crypto regularly, who knows I might have become millionaire in the last 30 minutes.

Prices changes seemingly occur for different reasons.

Whether it’s China banning mining, or a tweet from the DOGE father, or random daily swings.

Price changes seem random but the truth is they’re all related.

Why Crypto Prices Fluctuate

It’s less of a conspiracy and more of basic economics. The short explanation is crypto prices go up and down because of demand.

If demand is greater than supply prices rise.

If supply exceeds the demand prices fall.

That’s all there is to it.

A More Detailed Explanation

OK yeah, supply and demand, but how?

At any particular time the supply for crypto is practically fixed.

Miners add a few coins all the time but it’s hardly meaningful relative to the current supply

Take Bitcoin for example there’s about 18 million + 900 more everyday.

(You can read about how new BTC is made here.)

So yeah supply at particular times is essentially fixed.

From demand and supply laws, if supply is fixed demand becomes the captain.

So demand controls prices

It’s the one ring that rules them all.

If demand causes changes in price and people cause changes in demand then yes, you and I cause changes in price.

That’s why good news or bad news causes change in value of crypto.

When Elon posts a DOGE meme, big surprise, prices go up.

When China bans mining, prices drop.

The only reason crypto prices change is because people make it change.

How The Prices Actually Fluctuate.

Think about stock for a moment.

What do you think makes prices go up.

Usually people relate profits to higher stock prices.

If Apple makes a killing this year then their stock prices will go up.

Just because a company made a huge profit, prices don’t automatically go up.

Stock (and crypto) prices fluctuate just because investors make it happen.

A good example is GameStop - their price recently sky rocketed because of some reddit users. (Read about that here).

If you don’t want to read it here’s the important stuff.

Note the “just deciding to do it”.

If you have enough money you can do and undo in the stock market world.

In the world of stock.

If more people buy than sell , prices go up.

If more people sell, prices goes down.

The market responds to the demand for stock, not the quality of the company or their potential.

Just what people think about them.

That’s the same way crypto is.

The Math behind it

We already established that the supplies of stock or crypto are fixed.

When more people are buying crypto(or shares) the total amount available reduces.

If investors have high hopes for the crypto they’re willing to pay above the current prices to ensure they get it (now there’s more demand).

The prices go up and continue to rise until investors are no longer willing to pay.

When they fall it’s the opposite.

If due to an irresponsible tweet or something.

A sizeable amount of stake holders decide to sell - prices drop.

If a large portion of shareholders are attempting to sell.

And there’s not enough people to buy.

The sellers panic and get desperate.

The more desperate investors are to get rid of their stuff - the lower they’re willing to go.

The prices come crashing down.

That’s why the price of cryptos do what they do.

Now everything I’ve written makes it sound like there’s no actual value to stock or crypto.

It’s just high because a lot of people are ‘hodling' and low because people are selling.

It sounds like dogshit.

And yes it kind of is.

Especially stock.

Companies aren’t always rewarded for innovation or potential.

Sometimes it’s just hype – (think TESLA or GameStop).

It’s precisely because the majority control the prices and the decentralized nature of crypto that makes it easy for whales to manipulate the market.

In the world of crypto, if you have enough money you can theoretically make infinite money.

Capitalist’s paradise.

Stock is slightly different because it’s government regulated.

So while market manipulation is possible, it’s a jail-able offence.

Bonus — More Math

I’m pretty sure you get it now.

But I’ll add a bonus example

So let’s assume I’m CEO of a certain company named Faraday, I’m worth $170 Billion

I decide to buy ‘some’ Bitcoin.

1 BTC is currently about $35k

I buy 1 Million BTC – USD 35 billion.

(Keep in mind there’s less than 19 million BTC currently in circulation).

I now have 1/19 of the entire maeket.

I decide to hodl my coins (i.e I don’t touch them).

There’s now 1 Million BTC less used in transactions.

Analysts smell a bull run and buy more.

This adds fuel to an already hot flame.

Prices rise fast and hit $50k.

Then I decide to sell, 1 Million BTC is a shit ton of coins.

It’d be almost impossible to find one person to take it all.

I’ve made about 15 Billion USD so I don’t feel bad losing 5 or even 10 billion to offload the coins.

So I sell 1 Million BTC at $45,000 each.

Other people are trading at 50k, so more people just buy from me.

To prevent losses, other vendors adjust their prices and boom it’s official, BTC starts trading at $40k.

And that is how prices go up and down.

Glossary

Bull run means a continuous increase in price

Bear run means a continuous reduction in price.

Whales: are people with large amount of crypto.

Hodling: Misspelt holding - means to keep your crypto.

Disclaimer: some of the memes used were obtained from Google searches.