What makes Bitcoin so volatile?

Traders are always concerned about the volatility of ‘Bitcoin’. It is important to know what makes the value of this particular digital currency very volatile. Like many other things, the value of ‘Bitcoin’ depends on the rules of supply and demand. If the demand for ‘Bitcoin’ increases, the price will also go up. Conversely, a reduction in demand for ‘Bitcoin’ will lead to a decrease in demand. In simple terms, we can say that the price is determined by the amount that the market agrees to pay. If a large number of people want to buy ‘Bitcoin’, the price will go up. If more people want to sell ‘Bitcoin’, then the price will go down.

It is worth noting that the value of ‘Bitcoin’ can be volatile compared to more established commodities and currencies. This fact can be said to be relatively small in the size of its market, which means that a smaller amount of money can change the price of ‘Bitcoin’ more significantly. This inconsistency will naturally diminish over time as the currency develops and the size of the market grows.

After being teased in late 2016, ‘Bitcoin’ hit a new record in the first week of this year. There could be several factors that cause ‘Bitcoin’ to be volatile. Some of them are discussed here.

Bad Press Factor

Users of ‘Bitcoin’ are mostly afraid that various news events, including government officials and geopolitical events, may regulate ‘Bitcoin’. This means that the adoption rate of ‘Bitcoin’ is concerned about negative or bad press reports. Various bad news frightened investors and banned them from investing in this digital currency. An example of bad news is the significant use of “Bitcoin” to process drug transactions via Silk Road, which ended in October 2013 with the FBI stopping the market. This kind of story caused panic among the people and caused “Bitcoin”. ‘to greatly reduce the value. On the other hand, veterans of the trading industry saw such negative events as evidence that the ‘Bitcoin’ industry is maturing. So ‘Bitcoin’ started to increase in value as soon as the influence of the bad press disappeared.

Perceived value fluctuations

Another major reason for the volatile value of ‘Bitcoin’ is the fluctuation in the perceived value of ‘Bitcoin’. You know that this digital currency has properties similar to gold. It is regulated by a design decision that limits technology to limit its production to a static amount of 21 million BTC. Due to this factor, investors can allocate more or less assets in ‘Bitcoin’.

News of security breaches

News agencies and various digital media play an important role in building a negative or positive public concept. If you find it beneficial to advertise something, you might want to go for it without paying much attention to the negative aspects. There has been news of ‘Bitcoin’ security breaches and it has made investors think twice before investing hard earned money in ‘Bitcoin’ trading. They become very sensitive to choosing a specific “Bitcoin” investment platform. “Bitcoin” can be variable when the “Bitcoin” community discovers security vulnerabilities to create an excellent open source response to security fixes. Security concerns create a variety of open source software, such as Linux. Therefore, it is advisable for ‘Bitcoin’ developers to expose security vulnerabilities to the general public in order to make robust solutions.

The recent weaknesses in ‘OpenSSL’ attacked by ‘Heartbleed’ flaws, and Neel Mehta (a member of Google’s security team) seem to have had a downward impact on the value of ‘Bitcoin’ reported on 1 April 2014. According to some reports, the value of ‘Bitcoin’ fell to 10% in the next month against the US dollar.

Low Option Value ‘Bitcoin’ Holders of large proportions

The volatility of “Bitcoin” also depends on the large proportions of “digital” holders of this digital currency. It’s unclear for “Bitcoin” investors (who currently have more than $ 10 billion in holdings) how to fix a position that extends to a reliable position without moving the market hard. So “Bitcoin” hasn’t touched on the adoption rates of the market that would be important to give the “Bitcoin” holders great opportunity value.

Effects of Mt Gox

The recent notorious damage to ‘Mt Gox’ is another major reason for ‘Bitcoin’ volatility. All of these losses and the news of the consequent large losses had a double impact on instability. You may not know that this reduced the overall float of ‘Bitcoin’ by almost 5%. This also created a potential increase in the residual value of “Bitcoin” due to the increase in shortages. However, overcoming this increase was the negative result of the subsequent news series. In particular, many other “Bitcoin” gates saw the great failure of Mt Gox as a positive thing for the long-term outlook for “Bitcoin”.