WorldExecutivesDigest | Why Is Bitcoin Price Volatile? | The concern with investing in stocks is that prices will go up and down based on many different external factors. Over the years, many people have gotten incredibly rich from lucky or smart moves on the market, and likewise, lots of people have lost everything on a bad investment. This fluctuation is not dissimilar to investing in cryptocurrencies like Bitcoin, however people are still making money on this investment, and these drops and jumps in price are all part of the money-making process. Certain stock investments are more volatile than others and this is measured via the Volatility Index. There is also now a Bitcoin Volatility Index, which is a sign of just unpredictable this cryptocurrency can be, to have it’s own index. But what makes Bitcoin so volatile?
The Volatility Of Bitcoin
The fluctuating price of Bitcoin is a chaotic one, and many advise caution when jumping in and investing. However, some people have become incredibly rich off of this currency and this draws increased interest from all around the globe, causing it to retain its value.
Similar to stocks in gold, Bitcoin is actually limited to a specific global quantity. This is currently set at 21 million coins, and no more are being created as of yet. This means that the supply is fixed but the demand for Bitcoin goes up over time and that affects the price.
While this limited number can help the Bitcoin avoid inflation compared to fiat currencies, which is money created and distributed by governments like the USD or GBP, the value of Bitcoin can still be impacted by strong and weak economies as investors may buy and sell based on this. There is also great uncertainty when it comes to those that hold larger percentages of the currency. Those that hold significant amount could shift the market drastically if they were to find a way of converting their bitcoins into fiat currency quickly, although there are limits that reduce this risk such as time-based withdrawal limits on cryptocurrency exchange sites.
Another reason why Bitcoin price is volatile is that it’s somewhat dependent on public perception. The more people praise Bitcoin, the higher its price. Do you remember that tweet by a certain billionaire who bashed Bitcoin? That tweet caused the Bitcoin price to crash. Fortunately, millions of people around the world have fully embraced the cryptocurrency and price bounced back from 30K to around 42K USD.
What Is Bitcoin?
Understanding that markets can be volatile is one thing, but what is Bitcoin, specifically? This cryptocurrency was created in 2009 by an unknown person or group with the pseudonym Satoshi Nakamoto. The goal was to create a decentralized digital currency that has lower transaction fees compared to traditional payments over the internet. The name cryptocurrency comes from the fact that they use cryptography for guaranteed security, preventing risk to the currency of buyers and sellers during transactions, as well as controlling the creation of new bitcoins among other things. This cryptocurrency has dominated the market over the past few years and influences each and every other cryptocurrency due to its sheer popularity and fame. Today, people are buying and selling bitcoin for investment purposes, but many still use them as a currency for quick and easy transactions.
Should You Invest In Bitcoin?
Sadly, the answer to this question is not an easy one. People getting extremely lucky or predicting the future popularity of Bitcoin has made some incredibly wealthy, and these exciting stories are still encouraging people to take a chance with cryptocurrencies. While the chances of making an unfathomable fortune off of a tiny investment are extremely unlikely today, the value of Bitcoin continues to prove strong. Using this cryptocurrency as a part of your investing journey might be a smart idea, but don’t forget the risks involved in doing so. Remember, it’s important to do as much research as possible before investing so that you reduce that risk.