Traders are always concerned about the volatility of Bitcoin. It is important to know what makes the value of this particular digital currency highly volatile. Just like many other things, the value of “Bitcoin” also depends on the rules of supply and demand. If the demand for Bitcoin increases, the price will also increase. On the contrary, a decrease in demand for Bitcoin will lead to a decrease in demand. In simple words, we can say that the price is determined by the amount that the trading market is willing to pay. If a large number of people are willing to buy Bitcoin, then the price will go up. If more people want to sell “Bitcoins” then the price will fall.
It’s worth knowing that the value of Bitcoin can be volatile compared to more established commodities and currencies. This fact may be due to the relatively small size of the market, which means that a smaller amount of money can move the price of “Bitcoin” more noticeably. This discrepancy will naturally decrease over time as the currency evolves and the market size grows.
After being teased at the end of 2016, Bitcoin hit a new record high in the first week of the current year. There may be several factors that cause Bitcoin to be unstable. Some of them are discussed here.
The bad press factor
Bitcoin users are mostly afraid of various news events, including statements by government officials and geopolitical events, that Bitcoin may be regulated. This means that the rate of Bitcoin adoption is disturbed by negative or bad press reports. Various bad news created fear among investors and prohibited them from investing in this digital currency. An example of bad leading news is the known use of Bitcoin to process drug transactions along the Silk Road, which ended with the FBI shutting down the market in October 2013. These kinds of stories caused panic among people and caused Bitcoin’s value to plummet. to decrease significantly. On the other hand, trading industry veterans saw such negative incidents as proof that the Bitcoin industry is maturing. Thus, “Bitcoins” began to gain their increased value soon after the effect of the bad press wore off.
Fluctuations in perceived value
Another big reason for Bitcoin’s value to become volatile is the fluctuation of Bitcoin’s perceived value. You may know that this digital currency has properties similar to gold. This is driven by a design decision by the creators of the underlying technology to limit its production to a static amount, 21 million BTC. Because of this factor, investors can allocate less or more assets to Bitcoin.
News about security breaches
Various news agencies and digital media play an important role in building negative or positive public perception. If you see something being advertised as a bargain, you’re likely to go for it without paying much attention to the downsides. There has been news of Bitcoin security breaches and this has really made investors think twice before investing their hard-earned money into Bitcoin trading. They become too malleable in choosing a particular bitcoin investment platform. Bitcoin can become unstable when the Bitcoin community exposes security vulnerabilities in an attempt to create a great open source response in the form of security patches. Such security concerns give rise to several open source software such as Linux. Therefore, it is recommended that Bitcoin developers disclose security vulnerabilities to the general public in order to make strong decisions.
The recent “OpenSSL” vulnerabilities attacked by “Heartbleed” bug and reported by Neel Mehta (Google security team member) on April 1, 2014 seem to have some downward effect on the value of “Bitcoin”. According to some reports, the value of Bitcoin has fallen by up to 10% over the next month against the US dollar.
Little option value for holders of large proportions of “Bitcoin”.
The volatility of Bitcoin also depends on Bitcoin holders who have large holdings of this digital currency. It is not clear to Bitcoin investors (with current holdings over $10 million) how they would settle a position that widens into a fiat position without seriously moving the market. So Bitcoin has not hit the rates of mass market adoption that would be important to give value to the option of large Bitcoin holders.
Effects of Mount Gox
The recent high-profile damage at Mt Gox is another big reason for Bitcoin’s volatility. All these losses and the resulting heavy loss news had a dual effect on volatility. You may not know that this reduced the total float of Bitcoin by almost 5%. This also created a potential increase in the residual value of “Bitcoin” due to the reason for the increased scarcity. Nevertheless, the replacement of this elevator was the negative result of the subsequent news series. In particular, many other Bitcoin gateways saw the big Mt Gox debacle as something bullish about Bitcoin’s long-term prospects.