Bitcoin’s historically volatile price behavior can be attributed to a number of different factors. If you are able to gain an understanding of the factors crypto assets that affect its market price, you will be better able to decide whether or not to make an investment in it, engage in trading it, or simply continue to monitor its developments. However, this article contains a few factors that lead to bitcoin volatility, and to know more about it, continue reading.
Market Speculation
It is a significant contributor to the volatile nature of the bitcoin market. Traders can speculate on the price swings of cryptocurrencies by buying and selling the cryptocurrencies themselves. Volatility in the cryptocurrency market attracts speculative traders hoping to earn money by forecasting price fluctuations. If you can predict when bitcoin or XRP will rise, you can profit in the cryptocurrency market. You may benefit if you short-sell a coin just before it collapses. Short selling is simple: a trader takes a stock, sells it, and then purchases it back to pay the lender.
Media Coverage and Bitcoin
This is connected to the idea of speculation. The direction in which Bitcoin’s value moves is significantly influenced by the coverage it receives in the media. This is because the market for digital assets dominated by Bitcoin is relatively small and highly speculative. Investors and speculators are continuously keeping a close eye on the news in search of the next major event that has the potential to either stimulate or destabilize the market. When a new item emerges, everybody is aware that it is a race to purchase or dispose of it. The fastest will get the most, while the slowest will suffer the most loss.
The price of Bitcoin is significantly affected by media coverage. Several people in the bitcoin industry get their news from questionable sources, including social media, which is problematic.
Bitcoin is fully digital
The value of Bitcoin is decided by the number of people who want to buy it because its supply is predetermined & predictable. There is nothing to back up the price of the cryptos, and no government can impose their usage as a payment mechanism. This means their worth is based on faith. Those who don’t think Bitcoin’s price will climb or stay constant will sell. As a result, the price quickly drops as other people sell their items, depressing it further. The opposite can also happen, causing price rises and bubbles. Despite volatility, crypto’s rising price is a good sign for investors.
Developing Technology
Blockchain technology or any other alternative technologies that these cryptocurrencies rely on are still in the process of being developed. It’s hard to believe that it’s been over ten years since the first time someone suggested the idea of Bitcoin. There is a problem with scalability that arises whenever a smart contract isn’t validated within the timeframe that was anticipated, which results in rapid downward pressure.
Sentiment Factor
Bitcoin has no intrinsic value, which is the first and possibly most important fact to comprehend. This indicates that conventional valuation techniques, like discounted cash flows, can’t be utilized to quantify it. Bitcoin is not a physical asset, despite frequent comparisons to gold as a “store of value.”
As cryptocurrencies grow more well-known and popular, more investors will recognize the factors that drive their movement. Until then, the majority of trading is speculative, with traders buying and selling based on their opinions.
Individuals with long-term investment visions are buying cryptocurrencies because they are optimistic about the asset class’s prospects of becoming mainstream.
Scarcity
This makes reference to the limited supply of cryptocurrencies and their corresponding mechanisms. The mechanism that oversees the virtual currency has decided that the total number of Bitcoins that can ever be mined cannot exceed 21 million at any point in the future. Because of this, there is a high probability that there will be a shortage of bitcoins in the future, which might result in a significant price increase for the cryptocurrency. In order to increase their worth, certain coins make use of a procedure known as “burning,” which involves destroying a portion of the coins that are already in circulation.
In a nutshell, the price of bitcoin, like that of the vast majority of other assets, commodities, investments, or other things, is strongly dependent on supply and demand. However, if you want to safe trade, you can buy and sell bitcoins through reputed websites or app that is ekrona software.
