Why do prices rise quickly and then fall? What’s going on?

Newcomers often get confused by this kind of market movement. They clearly see a certain cryptocurrency double in value overnight, only to drop several percentage points again in just a few days. What’s really happening behind this?

First, market sentiment dictates the trends in the cryptocurrency world. Market sentiment can change very rapidly in the short term, especially since the emotional fluctuations of many retail investors are more extreme than those of the overall market. A cryptocurrency that rises quickly usually indicates that market sentiment was initially positive, leading many investors to rush in out of fear, resulting in a frenzy of capital inflow and a rapid price increase.

However, the rapid rise comes with risks, as many investors are chasing the price rather than basing their decisions on technical analysis, fundamentals, or long-term value assessments. Many of these movements may be short-sellers taking advantage of a rebound or institutions suppressing prices before quickly driving them up to attract retail investors to step in and buy. Then, once the price increase reaches a limit, the excessive short-term rise can lead to a “bubble,” making it easy for the price to plummet.

Thus, cryptocurrencies that rise quickly can also fall quickly, which is why some coins behave like a roller coaster — soaring when they go up and causing anxiety when they drop.

Now, let’s look at the reasons for a slow decline. A slow decline in the cryptocurrency world is mostly due to the market entering a period of consolidation. Although prices are falling, there isn’t a clear sign of a crash. A slow decline typically occurs when the market lacks confidence, with slow capital outflows and prices fluctuating within a certain range. This phenomenon is common in cryptocurrencies lacking fundamental support or during periods of overall low market sentiment. Investors are not entirely bearish about the future of a cryptocurrency, but they also lack sufficient confidence to support a sustained price increase, causing the market to gradually and steadily decline.