For everyone who has some knowledge of cryptocurrencies, the volatility of the famous Bitcoin is more than obvious. Even so, it is common that not everyone is familiar with the subject, so if you are one of those people who are interested in investing in Bitcoin, but do not know the reason for such volatility, then you are in the right place.
In this section, we will briefly explain the reasons why Bitcoin has a volatile price fluctuation. Of course, keep in mind that the fate of Bitcoin is the same as that of many digital currencies that are in the market as a general rule, therefore, it is common to see that, if BTC goes down or up, the others do too.
Why is Bitcoin so volatile?
1. The lack of regulation is one of its causes
There is a basic concept in the crypto world that talks about the decentralization of Bitcoin and the fact that it is a digital currency that is not regulated by any government entity; this means that there is no one who can regulate the value it has, nor can they do anything to control its falls or rises.
So, this decentralization and lack of control are one of the main reasons why its price is so volatile. However, this little or no regulation is the main attraction for which investors see it as a very attractive electronic currency and, if regulations were to appear, this interest could decrease, therefore, it is a difficult factor to remedy.
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2. The magic of supply and demand makes BTC volatile
In case you don’t know, Bitcoin was created with a cap supply, limited by an amount determined by its developers, this amount is 21 million tokens, but considering its popularity, its price is greatly influenced by the law of supply and demand.
That is, by having a limited amount of tokens and receiving so much demand, its price begins to rise due to the scarcity of tokens. On the contrary, if for some reason big investors start selling their bitcoins and flood the market with them, then their price will start to decline.
This volatility driven by supply and demand has its advantages and disadvantages. On the one hand, there is a very good chance that, out of nowhere, its price will drop precipitously, but it will also have an equal chance that its value will skyrocket, so, despite being one of the riskiest investments you can make, many people continue to see it as one of the most interesting market opportunities to invest their money.
In any case, for many people, this price volatility does not imply a real danger, especially if they already have experience in the area and know how to determine the behavior of cryptocurrencies.
3. It is a technology still in evolution
Bitcoin and cryptocurrency technology are still considered a very young investment platform since it has barely been launched for a decade, hence not everyone knows their concepts or has confidence in them, which prevents them from being maintained. stable in any situation.
Such is the case of influential people in the world who, just by talking wonders or, on the contrary, criticizing these coins, make their price rise through the roof or plummet to the ground respectively. It takes a lot of time, and trial and error processes for bitcoin to have a price that resists the onslaught of external factors.
4. World conflicts
This goes hand in hand with the law, with supply and demand and the actions taken by the whales or large investors, since each time the world or global economic outlook is affected by some circumstantial event such as the covid-19 pandemic, crises such as that of containers or wars, sanctions and inflation in powerful countries, make investors alert.
So, realizing this, they decide that it is better to move their capital to safer and less volatile investments. Hence they sell their bitcoins, saturate the market and cause their price to decrease. On the contrary, if everything begins to stabilize, they seek to return to these high-risk investments, they buy bitcoin and as demand increases, the value of the currency rises.