People are confused about bitcoins and other cryptocurrencies because it is highly volatile and hard to predict market fluctuation.
For example, the investment market has shown high growth in crypto, but it crashed and investors lost their funds. For more information about cryptocurrency exchanges, go to the official BitIQ app.
Bitcoin price dropped to $31,000 in May 2021, which is the lowest price of bitcoin recorded to date. On the other hand, the highest price of $64,000 bitcoin was marked in April 2021.
So, it is natural that you are confused about this volatility and can suffer from fear of uncertainty. Continue reading further to have an overall better understanding.
Reasons Why Bitcoins Make Volatile:
Below mentioned are certain factors that determine the market price value of cryptocurrencies:
Crypto like Bitcoin is the newest form of investment available in the market, and it will take some time to get settled.
Investors always consider bitcoin as a money-making machine, and they think that they can earn a high return from Bitcoins overnight. But it can drop the price of the coin.
For example, at the beginning of 2021, investors were trading bitcoin at $30,000 and the price of this crypto was raised suddenly within 2-3 months, and it reached $50,000.
If you think that you can earn a huge return by evaluating this stage, then you are in the wrong world because the price of bitcoin dropped at the end of the year 2021.
So, you must consider the following factors to measure the volatility of bitcoin:
1. If investors do not hold bitcoin for a long-term period, then the price of the coin can move upward anytime.
For example, people are now using their coins to buy goods and services, making online transactions with bitcoin.
Bitcoin is available in limited numbers, and if investors do not hold and block bitcoins, more coins will be circulated in the market, and the price of the coin will be increased.
2. As per the research reports, 21 million bitcoins are to be mined. So, when more investors join this market and start investing their funds in bitcoin, there will be a shortage of bitcoin, and the price of a coin will automatically move upward.
There are some coins available that have a burning mechanism, and they can burn their coins to raise the value of their cryptocurrencies.
3. Major investors tend to hold the coins for a long-term period, as it is a long-term investment option.
But, when they start selling their coins, the price of bitcoin will crash. These accounts are known as Whales where a large amount of bitcoin is stored, and they can influence the market and the price of bitcoin to a great extent.
4. As you know, bitcoin does not have any physical presence, and people treated it as digital gold because it has a store value.
Apart from that, bitcoin becomes more susceptible and volatile because of the sentiment and narratives of the investors.
For example, we have seen a collaboration of retail investors in 2021 done on social media where they have decided to buy a certain amount of stock or coins to boost their price.
So, investors have the freedom to make such collaborations and hold a large number of coins for their interest, which will lead to high volatility of this currency.
5. Apart from that, fake news is circulated about bitcoin around the world, and it can drop the coin price.
It is known as a defense mechanism where investors circulate such news through medical channels and invest their funds when the price moves downward.
Fake news can create a huge panic among investors, and small investors can start selling their coins overnight. It can drop the price, and the market can crash suddenly.
Lack of regulations is one of the major causes of the volatility of bitcoin because it is not issued or controlled by any government or stock exchange.
Technology like Blockchain is a complex one that can make crypto a decentralized currency, but it is hard to understand by investors who do not have any technical knowledge.