Bitcoin (BTC)
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Why is Bitcoin (BTC) So Volatile

Volatile price fluctuations are a given with bitcoin (BTC), but have you wondered what the driving force behind all that is? 

Well, there are multiple contributory factors to note. In conventional markets, a volatility index is used to scale volatility. However, bitcoin is still much too primitive to have its own generally applicable index.

All we know for now is that it is pretty volatile. And now we take a look at those critical factors that are responsible for the unruly nature of the bitcoin market.

Negative Publicity

Believe it or not, one of the main forces that are inadvertently behind the sudden spike in prices is bitcoins own bad press. The main proponents of fear regarding BTC trade are geopolitical events and government statements claiming bitcoin may well be regulated.

There have been some headline-grabbing incidents such as the bankruptcy of Mt. Gox and the utility of bitcoin in transacting drugs through the silk route which warranted involvement by the FBI.

Both served to immensely devalue bitcoin in a short time. Ironically, however, positive investor of bitcoin saw this as a sign of growing maturity in the market and drove up the value significantly in a very short time.

Perceived Value Also Fluctuates

If bitcoin (BTC) prices are fluctuating against fiat currencies that could well be the result of the perceived store of value up against the fiat currency. In many ways, Bitcoin is comparable to gold.

Its governance comes from a design decision from those developed the core technology and limit production to an iron-clad 21 million BTC. That is a lot different from fiat currency which is run by governments keen on keeping up low rates of inflation, high rates of employment, as well as a healthy growth by investing in capital resources.

As fiat currency based economies show their strong and weak points, traders will adjust accordingly with a number of assets they will funnel into bitcoin.

Highly Variable Perspectives Concerning Store Value and Method of Value for Bitcoin (BTC)

Another key factor that feeds into the volatile behavior of bitcoins pricing is the difference of opinion concerning its intrinsic worth as a store of value or method of value. Store of value describes the function through which an asset may carry some use in the future with some anticipation.

On the other hand, a method of value refers to any concept or object that is used to transmit property between two parties as an asset. Bitcoin is not all the clear as a store of value due to its current volatility status but it does carry an almost frictionless value transfer.

Both store value and method of value are variable against the fiat currencies so it follows that the value of bitcoin will change according to what is going on with the fiat currencies.

Tiny Option Value to Large Holders of the Currency

Those who hold an inordinate proportion of the full cake also have considerable influence on Bitcoin’s volatility.

For instance, if you are a bitcoin investor and your current holding stand above 10 or 11 million dollars, you are not likely to liquidate into a fiat position without causing a huge shift in the market.

Bitcoin (BTC) volume is similar to a small-cap stock, and so it is yet to hit the required mass market adoption rates that would supply option value to you as a large holder of the currency. How you have the chance to choose between buying BTC on an exchange or trading bitcoin on a cryptocurrency broker.

Security Breaches Trigger Reactions from Investors

Or more accurately – NEWS of security breaches trigger investors. Bitcoin can get pretty hairy when its community blasts their horns on security holes with the intention of generating a large scale open source responses as solutions for security.

There have been many positive results that have come of it. For instance, valuable open source software initiatives such as Linux have come about as a direct result of the exposure. Developers of Bitcoin should expose risks regarding security to the public to come up with effective remedies.

Conclusion

With bitcoin (BTC), traders have access to a whole new assortment of opportunities that were not available before.

However, volatility is a given with trading it and the factors we have cited above are only some of the total number that cause these immense price fluctuations in the market.


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This information should not be interpreted as an endorsement of cryptocurrencies or a recommendation to invest. Historic performance is no guarantee of future returns. As an investment class, cryptocurrencies are speculative investments and investing in cryptocurrencies involves significant risks – they are highly volatile, vulnerable to hacking and capital loss and sensitive to secondary activity. Before investing you should obtain advice and decide whether the potential return outweighs the risks.
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