Bitcoin (BTC), which was designed to be a decentralized method of payment, has recently become one of the most appealing investments for investors given its proposition. Many new investors, however, are unaware of why its volatility occurs.
Being a BTC investor can be a roller coaster ride. Since its inception in 2009, the world’s largest cryptocurrency has confounded commentators by registering astonishing growth along with a high level of volatility.
BTC’s price fluctuates, up and down, even though experts and analysts generally acknowledge that BTC will trend up with time. Let’s take a stab at exploring this side of the market.
Factors that cause such variation
Manipulation by crypto whales
Crypto whales are individuals or institutions that hold massive amounts of cryptocurrency whose actions have a significant impact on Bitcoin prices. When crypto whales buy or sell large orders, prices can swing in either direction. Whales may also cause increased volatility, lower liquidity, or a mix of both, given the relatively small market size of crypto in comparison to other markets such as the stock market.
The impact of global news
The impact of news on BTC’s value is the most important factor influencing its price. When there is bad news, the value will drop because investors will sell their positions, believing that the value will fall further. On the other hand, when there is positive news about BTC, its value rises.
Mt. Gox and Silk Road, the two biggest BTC scams in the past, have had a negative impact on the cryptocurrency’s price. There have been numerous other instances of money laundering and fraud that have caused price fluctuations in BTC though these have not happened of late.
Variable demand and a fixed supply
The variable demand in the face of a fixed and limited supply is the second most important reason for Bitcoin’s fluctuating value. As you may be aware, there are only 21 million BTCs available; unlike fiat currencies, BTC cannot be managed by varying supply. As a result, mining for new BTCs will eventually cease, leaving only those units on the market, increasing their value as the number of investors grows.
Demand, on the other hand, varies depending on the state of the economy. Many people invest during times of economic instability because it is considered a store of value, similar to gold.
Bitcoin value is determined by the actions of buyers and sellers. That is, there is no interference from a financial agency or the government of a country.
Although it has proven reliable over time, BTC is subject to fluctuations in the foreign exchange market, with its price determined by a direct supply and demand relationship.
There is also the belief that its price will continue to rise this year, eventually surpassing $75,000 and beyond.
Fear of loss
Although Bitcoin is the most valuable and trusted cryptocurrency, there is a fear of loss due to high-profile losses it has experienced in the past when its prices rose and fluctuated without a range. Traders and investors are concerned that they will be unable to handle losses.
Contemplating security issues are another reason for Bitcoin’s volatility. BTC fluctuates when a security vulnerability is discussed in the community. None of these have come to be true on the Bitcoin protocol, but markets can continue to react irrationally.
Unaffected by the economy of a country
Cryptocurrencies are strings of data that have been encrypted using technology and have a market value. Bitcoins, unlike traditional currencies like the dollar or the Indian rupee, are not issued by a central bank like the Reserve Bank of India.
As a result, the BTC is not directly affected by a country’s monetary policy, which is usually determined by inflation or economic growth.
Given all of the factors that can influence the price of BTC, it is clear that changes in the asset’s price are not the result of pure speculation. As a result, it is critical that when deciding whether to sell or buy into the asset, you carefully consider and analyze the factors mentioned above in order to make the best decision possible during market fluctuations.
There are numerous exchanges where you can buy and sell Bitcoin — one of them is Giottus. It is the easiest platform to use for buying, selling, and managing your cryptocurrency portfolio. It has several advantages that make it the best place to start trading, even if you are a beginner.