Bitcoin is highly volatile in nature, which is a fact not hidden. When compared to a stock market, the stock market volatility is way higher.
There are numerous factors leading to this volatility, and here we will discuss how volatile Bitcoin is compared to the stock market. In the Bitcoin System platform, you may learn more about selling and buying bitcoin.
The volatility in a bitcoin market is believed to be a blessing in disguise to many short-term investors as they can buy a coin at a lower price and sell them at higher prices in a concise period.
The key factors giving birth to this volatility are discussed in detail below.
1. The influence of demand and supply in a bitcoin market
2. The hype created by both the electronic and social media around it
3. Investors and user sentiments also play a key role
4. Changing Government regulations for the bitcoin market
5. The finite supply of Bitcoin
5 Key Factors Which Give Birth To Volatility
1. Market Demand And Supply:
The market demand for Bitcoins plays a crucial role in the volatility of the bitcoin market compared to the stock market.
The excitement among investors around this comparatively newer investment option is one of the main causes.
Bitcoin has gained a lot of fame and name in a very short period and everyone wants to hold on to the investment opportunity but the market has limited supply, unlike the stock market with numerous options.
2. The hype of Social Media:
The hype created by the electronic and social media around it is something to be discussed.
You may already find every news portal or almost every major media house running news on the bitcoin market at least once every day. This hype gave millions of new investors entry in fear of missing out.
3. Investors and User Sentiments:
User sentiment also plays a key role in this volatility compared to the stock market. When an investor thinks about how volatile Bitcoin is compared to the stock market, this is one of the major reasons.
The stock market is not new to the general public, and most of us have got a good hold on it now, whereas the bitcoin market being new, has high hopes tied to it.
People have invested in it with the hope of making a huge return due to all the buzz that has been happening around for the last five or so years.
Bitcoin is a decentralized currency, and its value is determined by its popularity as of now unlike the stock market where the value of a share is determined by a company’s performance.
4. Government Regulations:
The changing regulations for the bitcoin market are also noted when we talk about its volatility. Bitcoin is not as old as the share market, and since it is decentralized, governments are having a hard time regulating these markets.
They have to ensure that no illegal practices are being held out behind these markets.
They are taking a long time setting up regulations for these markets, which sometimes creates a sense of insecurity among the investors, and hence sharp dips and rises are seen in it.
On the other hand, a sound system is in place for the stock markets, giving the investors more comfort and a sense of security, which keeps panic selling or buying away from these markets.
5. The finite supply of Bitcoin:
The supply of Bitcoin is limited to around 21 million, but the number of investors is way too high. This is another reason for how volatile Bitcoin is compared to the stock market.
Anything which has a limited supply and higher demand will always be volatile. In the stock market, options and supply are not as limited as in the bitcoin market, which gives birth to this volatility.
These are some of the major reasons why volatility in the bitcoin market is high compared to the stock market.
The high volatility maybe something very good for short-term and experienced investors but extremely dangerous for newer investors.
That is why it is always recommended to do your research well and be well prepared to face any situation in this market.