The high rate of volatility of Bitcoin has always been a major concern for investors over the
years. This is due to the fact that they are usually exposed to losses whenever the market seems
to be heading to an unfavorable direction. It has experienced about five major crashes since the
year 2009. According to experts, the risk of investing in Bitcoin market is about 5 times higher
than risks in other markets. For instance, its price rose by around 10% - 20% in the month of
May 2019 and returned back to normal ($10k) after few hours.
Are you planning to invest in bitcoins? Do you know that understanding how its price volatility
works can help you avoid the loss nightmare which most investors are experiencing? It is true
that the market is highly unpredictable. However, such doesn’t imply that you can’t make great
decisions to guard your investment.
What you need to know
The major aim of this post is to show you some of the reasons why Bitcoin market is very
volatile and unpredictable. These will definitely help to ensure that you are making much better
decisions where other investors seem to be getting it wrong.
High level of scarcity
When bitcoins came into existence in the year 2009, they weren’t as scarce as they are now. As
the years are going by, they will become more scare due to the increasing number of investors in
the market. This is one of the major reasons why its price experiences constant fluctuation.
As of 2019, almost 18million tokens have been mined out of the available 21million tokens. The
price will continue to experience serious fluctuations as the demand for it increases.
Advancing blockchain projects
This is another reason for the volatile nature of Bitcoin. According to investment experts,
blockchain is the future due to some of its wonderful benefits which have led to many industries
and sectors adopting its uses. For instance, it is highly transparent thereby bring about efficiency
and effectiveness of systems.
It is through the trading platform of bitcoin
that blockchain transactions are carried out. As more
innovations are coming up through the latter, that is how price of the former will be changing.
News is a factor
The media has been able to influence happenings in the cryptocurrencies market over the years
to a great extent. For instance, in the month of January 2019, there were rumours that the bitcoin
market would experience a drop in price. This news influenced the decisions of investors.
Speculation
In order to give an apt description of speculation, 3 words need to be used – greed,
unpredictability and fickle. This is why it is playing a major in the constant fluctuation of the
Bitcoin market price. Investors are only interested in the market price of tomorrow. When there
is new information about the market, speculative demand is likely to be affected. This will in
turn affect the price of bitcoins. It is only a question whether such information will be favorable
or not.
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