But cryptocurrencies introduce an extra element into the equation. Most coins carry a finite or capped supply. For instance, a specific coin might have a limit on how many units will ever be available. This shortage causes value to be perceived, particularly with increased demand. When more people start having confidence in the potential of a cryptocurrency, they invest and hold onto it, dwindling the current supply available. This sends prices up. However, when people lose confidence, they begin to sell, spiking supply and bringing prices down.
Why Do Cryptocurrency Prices Fluctuate So Much?
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