How does the rational market theory explain the price fluctuations in the cryptocurrency market?

1 answers

• Nov 23, 2021 · 3 years ago
  According to the rational market theory, price fluctuations in the cryptocurrency market can be explained by the actions of rational market participants. This theory assumes that market participants have access to all relevant information and make decisions based on their rational assessment of this information. When new information becomes available, such as news about a security breach or a regulatory change, market participants may reassess the value of a cryptocurrency and adjust their buying or selling behavior accordingly. This can lead to price fluctuations. However, it's important to note that the cryptocurrency market is still relatively young and highly speculative, which means that emotions and market sentiment can also play a significant role in driving price movements. Therefore, while the rational market theory provides a useful framework for understanding price fluctuations, it may not fully capture all the factors at play in the cryptocurrency market.
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