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” also depends on the rules of supply and demand. If the demand for “Bitcoin” increases, then the price will also rise. On the contrary, lower demand for Bitcoin will reduce demand. Simply put, the price is determined by how much the trading market agrees to pay. If a large number of people want to buy bitcoin, the price will rise. If more people want to sell bitcoin, the price will fall.

It should be noted that the value of “Bitcoin” can be volatile compared to more well-known goods and currencies. This fact can be attributed to the relatively small size of the market, which means that less money can more significantly shift the price of “Bitcoin”. This discrepancy will decrease naturally over time as the currency develops and the market grows.

After being teased in late 2016, Bitcoin reached a new record high in the first week of this year. There may be several factors that cause the instability of “Bitcoin”. Some of them are discussed here.

The bad press factor

Bitcoin users are mostly intimidated by various news events, including statements by government officials and geopolitical events that “bitcoin” can be regulated. This means that the rate of adoption of “Bitcoin” is concerned about negative or bad reports in the press. Various bad news has scared investors and banned them from investing in this digital currency. An example of bad headlines is the widespread use of Bitcoin in the processing of drugs through the Silk Road, which ended with the FBI shutting down the market in October 2013. Such stories caused panic in people and caused “Bitcoin”. ‘the value will decrease significantly. On the other hand, veterans of the trading industry saw such negative incidents as evidence that the bitcoin industry is aging. Thus, “Bitcoin” began to gain its heightened value soon after the effect of the bad press disappeared.

Fluctuations in perceived value

Another serious reason that the value of Bitcoin is becoming unstable is fluctuations in the perceived value of Bitcoin. You may know that this digital currency has properties similar to gold. This is driven by the design decision of the creators of the core technology to limit its production to a static amount, 21 million BTC. Because of this factor, investors may allocate more or less assets to Bitcoin.

News about security breaches

Various news agencies and digital media play an important role in creating a negative or positive public concept. If you see that something is being advertised profitably, you will probably go for it without paying much attention to the downsides. There has been news of Bitcoin security breaches, and it has really made investors think twice before investing their hard-earned money in Bitcoin trading. They become too receptive to choosing any particular Bitcoin investment platform. “Bitcoin” can become volatile if the “Bitcoin” community shows a propensity for security by trying to create a great open source response in the form of security fixes. Such security issues give birth to several open source programs, such as Linux. Therefore, it is desirable that the developers of “Bitcoin” open to the general public security vulnerabilities to develop strong solutions.

The latest OpenSSL weaknesses, which were attacked by the “Heartbleed” bug and reported by Neil Mehta (a member of the Google security team) on April 1, 2014, seem to have had some reduction in the value of “Bitcoin”. According to some reports, the value of “Bitcoin” next month fell to 10% against the US dollar.

Small option cost for holders of large proportions “Bitcoin”.

The volatility of “Bitcoin” also depends on the holders of “Bitcoin” who have a large share of this digital currency. For bitcoin investors (with current holdings of more than $ 10 million) it is unclear how they will handle a position that is turning into a fiat position without a major market shift. Thus, “Bitcoin” did not affect the rate of mass acceptance in the market, which would be important for giving the option value to large holders of “Bitcoin”.

Effects of Mt Gox

The recent high-profile damage to Mt Gox is another major cause of Bitcoin volatility. All these losses and the final news of heavy losses had a double effect on instability. You may not know that this has reduced the total amount of bitcoin by almost 5%. This has also led to a potential increase in the residual value of “bitcoins” due to the widening deficit. However, the replacement of this rise was a negative result of a series of news that followed. In particular, many other Bitcoin gateways saw the big failure at Mt Gox as an optimistic moment for Bitcoin’s long-term prospects.