Bitcoin volatility plays a significant role in the recent downturns in the global stock markets. You can check platforms for smallest bitcoin unit to get an automated trading experience by accessing the best-in-class trading bots and trading strategies. Bitcoin is a decentralized digital currency that has made headlines over the last few years for being one of the first practical uses of Blockchain technology.
Bitcoin has no central issuing authority but still maintains a steady value by harnessing complex mathematics and an open-source network. The first transaction was worth 0.06 cents, and its current value is approximately USD 37000 per bitcoin. First, let’s discuss whether bitcoin volatility is a thing to worry about.
Volatility is good for the future of bitcoin:
The price of bitcoin is bound to get more volatile in the coming months as Governments and regulators continue to grapple with the basics of cryptocurrencies. However, many nations have begun to regulate cryptocurrencies, which has helped bring stability to some markets.
For a long time, traders and investors have been looking for an alternative asset class that can offer them quick returns without paying taxes. Cryptocurrency has now become one such option for those dealing in stocks, commodities and fiat currencies. However, this sudden rise in the Bitcoin price has made it very volatile.
Many seasoned traders are now worried about the kind of ride that bitcoin can give them in future. Bitcoin volatility will make governments pass regulation schemes and regulatory frameworks subjected to digital currencies, which is exceedingly favourable for the overall future of bitcoin as it leads to worldwide adoption of these virtual currencies. If governments completely legalize these virtual currencies, people will be more confident investing and using them for real-life transactions.
Why is bitcoin volatile?
The fact that it is decentralized and relies on high-tech cryptography has led to the coin’s volatility. The price of the first bitcoin was $0.06, with a current value of around USD 37000.
The price of bitcoin has been volatile in recent months, hovering around USD 67000 per bitcoin. Many Americans have heard about cryptocurrency and are actively trying to get their hands on bitcoins for trading or investing. Many believe that Bitcoin will soon replace traditional hard currencies as a global currency. Let’s discuss the reasons behind the volatility of bitcoin.
- Bitcoin Supply and Demand:
The supply of bitcoin is limited to 21 million coins and will decrease by half every four years. The supply is constrained by the digital mechanism that powers blockchain technology. As a result, demand for bitcoins has increased exponentially in recent months, making it one of the most sought-after technologies for investors. Blockchain technology is heralded as one of the most important technological innovations since the internet.
- Stringent regulation:
The emergence of bitcoin has been a boon for traders and investors worldwide and regulators in various countries. As a result, many nations have passed laws regulating cryptocurrencies, while some have yet to take action on this new asset class. This significant increase means that more investors are looking to make their fortunes off of cryptocurrencies, and bitcoin is gaining a more significant share in the overall landscape. However, these regulations are one of the prominent reasons behind bitcoin volatility.
- Uncertainty:
The lack of clear regulations and uncertain economic frameworks has created fear among many traders and investors. Many feel that if they participate in this new asset class, they are taking a chance at financial disaster. There is also fear regarding bitcoin security as any government or bank does not back it. And this is why paper hands take early exits from the cryptocurrency market leading to an unstable digital currency ecosystem which is also the reason behind bitcoin volatility.
- Bitcoin Investor Actions:
The recent sharp increase in bitcoin price has led to a significant rise in margin trading and speculation. It has encouraged more investors to invest in cryptocurrencies, leading to fluctuations in bitcoin prices and several other digital currencies. These excessive speculations have created fear among traders and investors, which is not very positive for the digital currency market.
- Bitcoin Supply and Demand:
Bitcoin is a deflationary currency, which means that every time someone buys a bitcoin, the value of each coin increases and decreases the supply of coins. The limited supply was designed to avoid inflation. As a result, all transactions are broadcast to the blockchain network and verified by “miners”. Miners are rewarded with transaction fees and newly minted bitcoins. There is an upward trend in bitcoin prices on various exchanges, likely to continue in the coming months due to increased adoption worldwide.
Virtual currencies are not issued by any central authority like banks or governments and exist only as numbers on a digital exchange. That is why the supply and demand of bitcoin are not in the hand of the government and relies upon the usage by bitcoin users.