3 Major Reasons Why Bitcoin Is So Volatile
Bitcoin has experienced a lot of volatility over the years. For instance, in 2017, its value skyrocketed to $20,000 from $1000. At the end of 2017, it plummeted to about $13,000. From that time, Bitcoin’s value has gone up and down, and other cryptocurrencies like Ripple and Ether have followed suit. As a new cryptocurrency investor, volatility can be disadvantageous if you buy at the wrong time. That’s said, here are the main reasons why Bitcoin and other cryptocurrencies are so volatile:
a) Bitcoin is just beginning to take the market by storm
While Bitcoin was inaugurated in 2009, it only gained popularity in 2017. The fact that the technology is still new, means many people still don’t understand it, and that’s one of the reasons why it keeps fluctuating. Also, a big percentage of Bitcoin in the entire world is owned by a few individuals. In fact, records show that 95% of all cryptocurrencies is owned by 4 people who have big shares in Bitcoin. This means that one owner can decide to put up a lot of Bitcoins in the marketplace, totally tipping over its value.
The idea of countries and monetary entities adopting the idea of cryptocurrency can really cause its price to fluctuate. For instance, when Japan adopted the technology, the price of Bitcoin shot up. On the contrary, the recent crackdown of cryptocurrencies dealings by China caused its price to plummet.
b) The blockchain, which is the building block of Bitcoin is a unique technology
The blockchain is a unique technology, which means it has never been used before. Bitcoin is also handled differently from other currencies because many people, government, and organizations have not figured out how it will actually work legally. That has caused it to fluctuate a lot. The original idea was for it to be a form of peer-to-peer, unregulated cryptocurrency that could be used to pay for any product or service across the entire world. But due to its rapid rise, and the kind of technology and power required to verify transactions, its use as digital currency has waned. This has led to a lot of uncertainty, and that’s why its value keeps changing.
As Bitcoin gains popularity and with its demand increasing every day, its value is projected to stabilize. This is because individual Bitcoin owners have no capabilities to control its price. Plus, more people have bought Bitcoin today. Also, the fact that most governments have taken steps to regulate cryptocurrencies, means its value might stabilize in the future.