What factors make Bitcoin a volatile currency?
People were astonished by the introduction of cryptocurrencies as it was explained to be a medium of exchange that will not involve government. Still, people didn’t know that its market is highly volatile. There are wild swings that occur in the price of bitcoin and other cryptocurrencies, which scares people a lot.
The price fluctuations that take place in the bitcoin market are driven due to numerous factors. The Volatility Index measures the volatility of the market. For bitcoin as well, a volatility index has been developed that is called as Bitcoin Volatility Index. Only through a Volatility Index can we determine the volatility of different digital currencies through their market capitalization and you can visit cannabis-millionaire.com to get updates about volatility and price of bitcoin.
It’s been 2021, and if we calculate the volatility of Bitcoin over the past twelve months, then it has been found that bitcoin has been quite volatile. When bitcoin’s price started to increase, it increased and touched the sky, but suddenly, when it started to decline, it declined a lot, that many investors faced huge losses. But do you know the reason behind this highly volatile market of bitcoin? If you are among those bitcoin users that still haven’t explored the factors behind the volatility of bitcoin, you are at the right place!
Moving forward, we will explore the factors that influence the price of bitcoin and makes it market volatile.
Improbability about the future value of Bitcoin
Bitcoin is now considered both a medium of exchange and a store of value, increasing its volatility. When bitcoin is considered a store of value, it functions as a valuable asset like gold or any other precious method that will benefit the future but will have a bit of predictability. Like gold, Bitcoin can be used as a store of value that can be used for the exchange of goods and services in the near future, like regular money.
When bitcoin behaves like a medium of exchange, it is used as regular money transferred from one person to another. The volatility of the bitcoin market makes it the best method of exchange but not as a good store of value. This is why bitcoin value change according to events and news that are observed along with fiat currencies.
Negative news and events harm the adoption rate of cryptocurrencies.
One of the major factors that scare bitcoin users and increase Bitcoin volatility includes the negative news and events about bitcoin. Negative news may include governments’ negative statements, crypto exchange hacks, theft of private keys, and more. The media does the work of exciting the negative or bad news about Bitcoin by producing it in headlines, which severely affects the adoption rate of Bitcoin.
In 2014, a crypto exchange hack took place, and this highly affected the adoption rate of bitcoin as it shocked the investors that weren’t even aware of hacks or scams. There might be other news like the use of bitcoin to carry out illegal trade of drugs and weapons, Dark Web, Silk Road, and more affect bitcoin investors and traders. These events panic people, resulting in a dropped value of bitcoins compared to fiat currencies. However, investors experienced, and bitcoin-friendly don’t get scared because they have understood the nature of the Bitcoin market and therefore invest their money for the long-term.
Security breaches and scams
Bitcoin’s volatility increases where the bitcoin users came to know about vulnerabilities that take place. Security is the main priority of bitcoin users as they invest or trade their hard-earned money to get maximum benefits. If the outcomes of investing are scams or frauds, it will prevent people from adopting it. In bitcoin’s journey, there have been plenty of security breaches that have taken place at crypto exchanges, which made investors lost all their funds.
The hacks or scams in cryptocurrencies are highly covered in headlines and thus aware people about the vulnerability of Bitcoin. Bitcoin is based on blockchain, and it promises high security to bitcoin users as it protects networks and transactions using cryptography, but no wallet promises security of private keys. It is the responsibility of users to protect their private keys from fraud and cyberattacks.