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What Makes Bitcoin So Volatile?

Written by on September 16, 2020 in Stuff with 0 Comments

Image Credit: Benoit Tessier / Reuters

Traders are always concerned about the volatility of “Bitcoin.” It is essential to know what makes the value of this digital currency so volatile. Like many other things, the value of “Bitcoin” depends on supply and demand rules. When the demand for “Bitcoin” increases, so does the price. On the contrary, the decline in demand for “Bitcoin” will lead to a decline in demand. Simply put, we can say that the price depends on how much the trading market will pay; when many people want to buy “bitcoins,” the price increases. If more people want to sell Bitcoin, the price will fall.

You should be aware that “Bitcoin” can be volatile compared to more established commodities and currencies. This fact can be attributed to the relatively small size of the market, which means that a smaller amount of money can move “Bitcoin” more prominently. This inconsistency will, of course, decrease over time as the currency grows, and the size of the market increases.

After being bullied in late 2016, Bitcoin hit a new high in the first week of the current year. Several factors can make Bitcoin volatile some of them are discussed here

The bad press factor

“Bitcoin” users are generally afraid of various current events, including statements from government officials and geopolitical events that “Bitcoin” could be regulated. This means that the adoption rate of “Bitcoin” will be affected by harmful or destructive press releases. Several bad news scared investors and banned them from investing in this digital currency. An example of bad news on the front page is the prominent use of “Bitcoin” in processing drug transactions on the Silk Road, which ended with the FBI's closure in October 2013. These kinds of stories have panicked people and lowered the value of ‘Bitcoin.' On the other hand, industry veterans saw these negative incidents as evidence that the Bitcoin industry is maturing. So “Bitcoin” started gaining its higher value shortly after the bad press wore off.

Fluctuations in the observed value

Another good reason the value of “Bitcoin” becomes volatile is the fluctuation in the perceived value of “Bitcoin.” You may know that this digital currency has properties similar to gold. This is determined by the nuclear technology manufacturers' draft decision to limit production to a static amount of 21 million BTC. Because of this factor, investors can allocate fewer or more assets to “Bitcoin.”

Security Breach News

Various news agencies and digital media play an important role in building a negative or positive public concept. If you see something being advertised for a good price, chances are you'll do it without paying much attention to the negatives. There is news of security flaws in “Bitcoin,” which has made investors think twice before investing their hard-earned cash in trading “Bitcoin.” You are too prone to opting for a particular Bitcoin investment platform. “Bitcoin” can become volatile as the “Bitcoin” community exposes security sensitivities to have a great open-source answer in security solutions. Such security holes lead to various open-source software like Linux. Hence, Bitcoin developers need to expose security holes to the public to create solid solutions.

The latest ‘OpenSSL' vulnerabilities, attacked by the ‘Heartbleed' bug and reported on April 1, 2014, by Neel Mehta (a member of the Google security team), appear to depreciate the value of ‘Bitcoin.' According to reports, the value of “Bitcoin” fell as much as 10% in the following month compared to the US. Dollar.

Small option value for holders of large shares of “Bitcoin.”

The volatility of “Bitcoin” also depends on whether the holders of “Bitcoin” hold large amounts of this digital currency. It is not clear to Bitcoin investors (with current positions over $ 10M) how they would colonize a position that would evolve into a fiat position without seriously moving the market. Thus, “Bitcoin” has not achieved the mass-market adoption rates that would be important to give the big “Bitcoin” holders an option value.

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