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Main Factors of Volatility in Bitcoin

By CoinSteps | Crypto - Guides | 23 Apr 2020


Many pessimistic people believe that because Bitcoin is so volatile, all cryptocurrencies are also a Ponzi scheme. Although I agree with the volatility factor, I disagree with the Ponzi scheme term. It goes without saying that anything that trades in a free market without regulations are going to be highly volatile.

It's a incontrovertible fact that the cryptocurrency market has been very volatile from the first days, when Bitcoin was invented in 2008 by Satoshi Nakamoto. You can read here the most interesting quotes by Satoshi Nakamoto. I take a guess many of you may not know what volatility means in the crypto space and I want to analyze all the factors that affecting the prices.

First let's have a look at the definition of volatility:

In finance , volatility is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns.
- Wikipedia

Now lets discuss about speculation. Since crypto space is an unregulated market, it lures speculative traders looking to make big money by guessing the trends. Prices are mainly based on speculation and psychology regardless of the technology behind cryptocurrencies.

So why are cryptocurrencies so volatile? Here are the main reasons that the price of Bitcoin and all altcoins. Whether we like it or not, Bitcoin price determines altcoin prices since the beginning of cryptocurrencies.

Main Factors of Volatility

Media

https://www.pexels.com/el-gr/photo/chrome-pop-rock-vintage-114820/

Media like television and news websites,have an outsized impact in cryptocurrencies price. They have the ability to manipulate public opinion. Positive coverage generally results in higher prices, while negative news have the exact opposite effect.

As a result, prices depend on whether the headlines will launch a bull or bear movement. You must always choose credible sources of information and be really careful to what you believe.

Supply and Demand

Since most cryptocurrencies are digital assets and aren’t backed by anything physical, like a currency, meaning that the price is set entirely by the laws of supply and demand. For instance, the total amount of Bitcoin and most cryptocurrencies ever exist is fixed, then the long term price will depend mainly on how many will want to possess the particulat assets.

If many people no longer believe in an asset, inevitably the value will start to fall and that maybe convince others to sell too. The opposite scenario may also occur

Crypto world is still developing

https://www.pexels.com/photo/gold-colored-bitcoin-on-railroad-1099296/

In the early years of cryptocurrencies, not many of us were involved. Over the years and with massive news and social media exposure, the cryptocurrency market has grown rapidly, but it still has great potential. The size of the market can not yet be compared with fiat currencies or gold.

That means if some big investors decides to buy or sell a crypto, the price can drag depending on their needs. In the field of cryptocurrencies they are the well-known "whales" You can follow Whale Alert on twitter, an account reporting big transactions in many cryptos.

Government regulations

As cryptocurrencies are a worldwide phenomenon, and the governments are following closely on the crypto space they have a hard time to adopt a mid-term position on them. regulations are almost non-existent. Inevitably this allow for market manipulation and thereby volatility

While Bitcoin and some other crypto are decentralized, any regulation will have a major impact and can certainly direct the price to whether go up or down. The influence of governments decisions shouldn't be overlooked.

Conclusion

Just as all stocks and commodities have their up and downs in price, the same goes for Bitcoin and altoins. There are many factors pushing the cryptocurrencies market to random directions depending on the events. Until cryptocurrency market matures, the volatility is going to be high, and in my opinion has a long way to be reduced.

Also, as the technology constantly evolves, the ulitilty value will reach higher levels so that the usable of cryptocurrencies and also the adoption to ever bigger masses. Crypto revolution is just in the beginning.

I would like to know how you deal with the high volatility. You can comment below and don’t forget to subscribe!

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CoinSteps
CoinSteps

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