Can the invisible hand theory explain the volatility of cryptocurrencies?

3 answers

• Supriya DebnathApr 29, 2025 · 2 months ago
  The invisible hand theory, coined by Adam Smith, suggests that in a free market, self-interested individuals will unintentionally promote the greater good of society through their pursuit of personal gain. When it comes to cryptocurrencies, the invisible hand theory can be applied to explain the volatility. As there is no central authority controlling the price of cryptocurrencies, market forces and the actions of individual traders play a significant role in determining the price. The constant buying and selling of cryptocurrencies by traders with different motivations and expectations can lead to rapid price fluctuations, making cryptocurrencies highly volatile.
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• Blom MikkelsenOct 28, 2020 · 5 years ago
  The invisible hand theory is often used to explain the equilibrium and efficiency of markets. However, when it comes to cryptocurrencies, the theory may not fully explain their volatility. While market forces and individual actions do influence the price of cryptocurrencies, other factors such as regulatory changes, technological advancements, and investor sentiment can also contribute to their volatility. Therefore, while the invisible hand theory provides some insights, it is not the sole explanation for the volatility of cryptocurrencies.
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• Elie MatshiFeb 08, 2022 · 3 years ago
  At BYDFi, we believe that the invisible hand theory can partially explain the volatility of cryptocurrencies. As a decentralized exchange, we have witnessed firsthand how market forces and individual actions can impact the price of digital assets. However, it is important to note that cryptocurrencies are still a relatively new and evolving market, and their volatility can also be influenced by external factors such as news events and market sentiment. Therefore, it is crucial for investors to stay informed and make informed decisions when participating in the cryptocurrency market.
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