You must have heard that people vacillate when it comes to investing in cryptocurrencies like bitcoin? Do you know the reason behind this? The thing that is quite uncertain in the case of bitcoin is its price. The price of bitcoin changes drastically, and it leaves people confused about what happened that price fluctuations happened. The change in the price of bitcoin occurs due to plenty of factors. The price fluctuation is the only reason why people across the world prefer to invest in fiat currencies and gold rather than investing in bitcoin. You can now easily trade in bitcoin and get the best trade experience by visiting the bitcoin trader.
Many investors even take the benefit of the volatile market of bitcoin. A beginner must enter the market by considering all the factors that change the price of cryptocurrencies. The volatility of cryptocurrencies in the market is estimated through the CBOE Volatility Index. There is no specific term set for the volatility of bitcoin and other cryptocurrencies, but it is sure that the volatility in the price of bitcoin is ten times more than the other valuable assets.
In this article, we will explore the various factors that determine the volatility of cryptocurrency prices.
Dreadful rate of adoption
The reason behind the popularity of bitcoin across the world is that it is decentralized in nature. It is neither governed nor regulated by governments. There is no authority that controls the price, demand, and supply of bitcoin, making it more preferable than fiat currencies. Because it is a digital currency, there are mal practitioners always seeking to attack users’ wallets. This has led to many bad events, especially about exchanges, which changed bitcoin’s reputation and popularity.
The dire events have changed the opinion of the general public, which is one of the main factors for fluctuation in bitcoin price. The perception of the public played a significant role in changing the price of cryptocurrencies. The crypto analysts who understand the market make some investment decisions and give rise in the value of bitcoin and other cryptocurrencies.
Professed value of bitcoin
Another reason behind enormous fluctuations that happen in the price of bitcoin is that cryptocurrencies like bitcoin are a store of value as compared to fiat currencies. The features and qualities of bitcoin make it a good store of value, just like gold. The finite supply of bitcoin is the main factor that people want to invest in it, and day by day, the mining process of cryptocurrencies is becoming difficult.
When we talk about fiat currencies, they are entirely different from currencies that are a store of value like bitcoin. The government backs the fiat currencies, and it positively affects the employment rate and inflation level. The economy that is dependent on fiat currencies is also unpredictable as it can show weakness or strength anytime. This makes people invest more in bitcoin and less in fiat currencies because bitcoin’s value will definitely increase.
The reaction of investors to breach in security
The other main reason that led to fluctuations in bitcoin’s price is the reaction of investors when a breach in security happens. The price fluctuates when the users point out the susceptibility in the bitcoin network and its working. The security concern is one of the main issues that most bitcoin users face in today’s time.
If any security breach happens, users start exchanging their bitcoins for fiat currencies even if bitcoin’s price is low. This is also a positive point for beginners who are waiting to enter into the market and invest when bitcoin’s price is less.
Losses faced by investors
Another issue that most bitcoin investors face is the losses that occur due to fluctuations in bitcoin prices. Because the bitcoins are limited in number, and this increases the price of bitcoin even if a security breach or anything negative is happening in the financial market. The early adopters of bitcoins haven’t gained complete knowledge of the market and have poor management skills, and this has led to a loss in their investments. The price and popularity of bitcoin are increasing, but its volatile market is the only thing that people fear.