Being a bitcoin (BTC) investor can be a challenging journey. Since its launch in 2009, the most well-known cryptocurrency in the world has baffled analysts by rising to absurdly high values, yet prices have nevertheless been characterised by high levels of volatility.
Despite bitcoin’s price reaching new all-time highs during the past year, many investors in the currency lost money due to sharp declines and dramatically shifting processes due to the extreme price swings linked with BTC and the larger universe of cryptocurrencies.
Throughout its brief lifetime, bitcoin has frequently experienced bear markets of 30 to 40 percent. Additionally, despite the fact that institutional investors and publicly traded firms have made considerable investments in the cryptocurrency in recent months and years, which has increased its popularity significantly. Massive price swings are still a possibility for bitcoin (and other cryptocurrencies). Then why is there such volatility? Will it eventually quiet down more?
Table of Contents
Bitcoin is as volatile as people’s sentiments:
The fact that bitcoin has no intrinsic value is the first and possibly most significant item to take into account. As a result, it cannot be quantified using conventional valuation techniques like discounted cash flows. Additionally, although being equated to gold as a “store of value” on occasion, bitcoin has no physical presence.
The flexibility for investors to express themselves and make decisions based on their beliefs, which has long been a feature of cryptocurrency markets, demonstrates how emotion is transforming all aspects of finance. Institutional money is starting to use these online discussions to evaluate sentiment, despite the fact that ordinary investors make up the majority of this ecosystem.
Bitcoin prices have the ability to soar on a whim and plunge sharply for apparently no cause at all. These shifts in opinion can impact bitcoin more drastically than its conventional stock market equivalents because it is not tethered to a physical value like in the case of gold.
Fear Uncertainty and Doubt AKA FUD:
The cryptocurrency community has coined the abbreviation FUD, which stands for “fear, uncertainty, and doubt,” to condemn what its supporters perceive to be the deliberate propagation of false information. (Contrarily, detractors dismiss the term as an investor defence tactic to ignore bad news.) Headlines that directly or even indirectly mention bitcoin might scare people into panic selling on a scale that can start a period of severe volatility, whether it’s FUD or real negative news.
The reason for the wildly fluctuating prices is not short on headlines. For instance, the FBI took down Silk Road in 2013 as a result of the well-known use of bitcoin in drug transactions conducted through that platform.
Even if some of these incidents weren’t specifically related to bitcoin, the public fear that followed had a significant impact on the price of BTC.
Despite this, seasoned cryptocurrency investors thought that such tales were proof that the industry had developed past its turbulent infancy. They believe that as cryptocurrencies advance, shady exchanges and other unethical business practises will be eliminated. According to the reasoning, this really contributed to the development of a more positive perception, which on the long term drove the price of bitcoin higher.
Virtually all cryptocurrencies, including Bitcoin, are based on distributed blockchain technology. Blockchain technology can decentralise assets like bitcoin and other currency, despite the fact that the technology itself is difficult. Cryptocurrencies don’t have a single centralised location because blockchains are distributed across numerous machines all over the world. As a result, existing regulatory systems find it exceedingly challenging to keep them under control.
This is not to suggest that efforts by the government to regulate cryptocurrencies like bitcoin don’t have an impact on public perceptions of their worth. It’s true. Many times, a government’s tightening of crypto laws will stunt the growth of a cryptocurrency. Recent Chinese limitations have caused a period of extreme volatility in bitcoin pricing.
The characteristics of investors who are actively involved in the industry are a significant contributor to the volatility of bitcoin prices and the rest of the crypto market. The entry requirements for the cryptocurrency industry are notably lower than in some more conventional markets. There are no legal requirements, trading licence requirements, or minimum investment requirements. In this sense, anyone with internet connection may jump in and start trading through bots like Bitqt App.
Additionally, the number of retail investors searching for rapidly appreciating assets to invest their newly found savings in has significantly increased in the post-COVID investing scene. The market, however, loses experience as more ordinary investors enter the game.
The market, however, loses experience as more ordinary investors enter the game. Because of this, cryptocurrency markets can be particularly volatile during times of hype or FUD. While seasoned traders may remain calm during periods of price volatility, newcomers may panic and try to sell. This also means that cryptocurrency markets may be more vulnerable to manipulation through false information.
Bitcoin is still prone to volatility despite the influx of significant institutional investors over the past few months and years. However, with a little more knowledge about what prompts such erratic swings, you should be better equipped to maintain your composure and make sense of the confusing crypto landscape.
Since Bitcoin has been quickly embraced by investors and traders, price movement speculation is a key factor in determining its value at any given time. Since Bitcoin has only recently been created, it is still in the price discovery stage. This means that until prices stabilise—if a stable point can be reached—prices will continue to shift as investors, users, and governments work through the initial growth pains and concerns. Supply and demand, investor and user attitude, governmental restrictions, and media excitement all have an impact on the price of bitcoin. Together, these elements contribute to price volatility.