Traders are always concerned about the volatility of Bitcoin. It is important to know what makes the value of this particular digital currency highly unstable. Like many other things, the value of Bitcoin depends on the rules of demand and supply. If the demand for “bitcoin” increases, then the price will also rise. Conversely, a reduction in the demand for “bitcoin” will result in a decline in demand. Simply put, we can say that the price depends on the amount agreed to be paid by the trading market. If there are many people who want to buy “bitcoin,” the price will rise. If more people want to sell “bitcoin,” the price will drop.
It is worth mentioning that the value of “bitcoin” may fluctuate compared to more mature commodities and currencies. This fact can be attributed to its relatively small market size, which means that less money can highlight the price of “bitcoin”. As the currency develops and the market expands, this inconsistency will naturally decrease over time. After being teased at the end of 2016, Bitcoin hit a record high in the first week of this year. There may be several factors that cause “bitcoin“ to fluctuate. Some of them are discussed here.
Bad pressure factor
“Bitcoin” users are mostly scared by different news events, including statements by government officials and geopolitical events, and “bitcoin” may be regulated. This means that the adoption rate of “bitcoin” is plagued by negative or bad news reports. Different bad news stories have brought fear to investors and they are forbidden to invest in such digital currencies. An example of bad headlines is the significant use of “bitcoin” in the drug trade through the Silk Road, which ended with the FBI stopping the market in October 2013. This kind of story has caused people to panic and led to a significant drop in the value of Bitcoin. On the other hand, veterans in the trade industry believe that this negative event is evidence that the “bitcoin” industry is maturing. Therefore, after the impact of bad news disappeared, “bitcoin” began to gain value quickly.
Perceived value fluctuation
Another important reason for the bitcoin value volatility is the perceived value volatility of “bitcoin”. You may know that this digital currency has properties similar to gold. This is determined by the design decisions of the core technology manufacturer, limiting its production to a static quantity of 21 million BTC. Because of this factor, investors may allocate fewer or more assets to Bitcoin.
News about security breaches
Various news organizations and digital media play an important role in establishing negative or positive public concepts. If you see something advertised, then you are likely to do it without paying attention to the negative aspects. Regarding the “Bitcoin” security breach, it does allow investors to think twice before investing their hard-earned money in a “bitcoin” transaction. They are too easy to choose any particular Bitcoin investment platform. Bitcoin may become unstable when the Bitcoin community finds security sensitivities in an effort to create an excellent open source response in the form of security fixes. This security issue has spawned some open source software such as Linux. Therefore, it is recommended that “bitcoin” developers should expose security vulnerabilities to the public in order to develop a robust solution.
Small option value for large “bitcoin” ratio holders
The volatility of Bitcoin also depends on the “bitcoin” holders who own a large number of such digital currencies. It is unclear how investors of “bitcoin” investors (currently holding more than $10 million) can solve the problem of expanding to liquidation without seriously affecting the market. Therefore, Bitcoin does not involve large market adoption rates, which is important for providing option value to large Bitcoin holders.