The Price Volatility of Bitcoin and Cryptocurrencies Explained

Bitcoin is one investment that jolts a lot of people out of their financial amnesia. Why is price volatility a feature of cryptocurrencies? Read more..

4 REASONS FOR THE VOLATILITY OF THE GLOBAL PRICE OF BITCOIN

There is no doubt that Bitcoin is the pioneering cryptocurrency , and it came to human consciousness when it was introduced in 2009 when the legendary Satoshi Nakamoto launched his whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Bitcoin was then floated and lots of successes and as minor setbacks have been recorded so far.

One of the concerns associated with the Bitcoin is its relative volatility, compared to traditional fiat currencies. This concern has further strengthened the stance of many people on Bitcoin as a risky investment and a sham; with both investors and digital currency users growing cynical despite evident massive potential benefits.

Bitcoin’s value has displayed massive volatility historically. For instance, within a three-month period from October 2017 to January 2018, the price volatility of the Bitcoin approached nearly 8%, more than double its volatility in the 30-day period from December 2019 to January 15, 2020. It is thus important to understand the several factors driving Bitcoin’s volatility.

Read Also: How To Invest In 2020

  1. Speculation

As with other investments, news reports determine the buying or selling decisions of most investors. News ranging from statements credited to luminaries in the tech or investment sphere, security breaches and new regulations by regulatory authorities and governments usually trigger responses in the Bitcoin market. This corresponds to the law of demand and supply.

It is therefore important to try not to allow emotions to lead you in making critical investment decisions. It is also important to be abreast with up-to-date market information in order not to make huge losses or miss opportunities to make a good spread.

2.Poor Management Of Exchange Platforms

This has also been seen to generally affect the market value of the Bitcoin. One example is the price instability that occurred around November 2018 when rumours of security issues and poor management plagued Mt. Gox exchange.

Prior to this, Bitcoin had reached an all-time high of around $1200 and dropping by about 39% in about three days. Many users experienced challenges withdrawing their funds at that time, resulting in widespread panic.

Another massive price crash was triggered early in February when Mt. Gox Exchange filed papers for bankruptcy in Japan. The price of Bitcoin was around $911 at the time, but it crashed to $260 in under two weeks as a ripple effect of that move.

Read: Which Cryptocurrencies Should You Invest In 2020?

3.Government Policies

Policies in support (or not) of the Bitcoin also determine the direction of the digital coin’s value.  Validation in form government recognition portends positive things for the crypto space.

Institutional parties understand that this trend is inevitable, pushing them to work on policies intended to gain as much social benefit from digital currencies as possible. This gives comfort to those who hold traditional views on financial systems; making a smoother move to an economy where digital currencies play a more critical role in global trade.

4.Lack Of Consensus In Community Governance

This has also contributed to the instability in the value of the Bitcoin. An example of this influence was observed in 2017 when an increase in block size led to a hard fork that resulted in different blocks with different rules, thereby, birthing Bitcoin cash.

These and other similar periods of uncertainty in the community on the rules of Bitcoin, as well as its future, have mostly had negative consequences on Bitcoin prices.

Conclusion

It is of utmost importance to understand the several price-determining factors allied to Bitcoin in order to take full advantage of the bull and bear periods to maximize profits.

Author: Gb Obasogie

Committed to a better you

5 thoughts on “The Price Volatility of Bitcoin and Cryptocurrencies Explained”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s