Precious metals, stocks and commodities all have fluctuating values each day. In April this year, May futures for US Crude oil fell to minus $37.63 a barrel. High volitility is more commonly known in the Cryptocurrency markets but it happens it other markets as well.
Bitcoin had gained popularity in the Fintech space due to its highly volatile nature. While many are scared to enter into this space, it is still fascinating to understand how it works.
In May 2010, 1 full Bitcoin was less than $0.01. The price of Bitcoin only touched $1 after February 2011. You can imagine how comfortable a retirement you can have if you had bought Bitcoin then.
However, things started to only get exciting from then. On December 15, 2017, Bitcoin’s price flew to around $18,000 and then to nearly $20,000 2 days after. The volatility did not stop as the price drastically fell below $14,000 after December 22, 2017.
This price movement got the attention of many traders, investors, and people outside of the crypto industry. While the huge swings in Bitcoin price seemed very unnatural and impossible, there are numerous factors to take into consideration.
Some of these factors are:
- Bitcoin’s limited supply and the level of its market demand
- The number of available competing cryptocurrencies in the market
- The cost of acquiring or generating bitcoin through the tedious mining process
- Bitcoin’s availability in various cryptocurrency exchanges and marketplaces online
- Geographical regulations, limitations, and legal requirements or concerns
- The rewards are given to miners for verifying every transaction on the Bitcoin blockchain
- Bitcoin’s scalability and governance to its underlying software or forks
As adoption and the market continues to grow, the list will continue to grow as well.
Advantages of Bitcoin Volatility
Traditional fiat currencies that are issued by governments are controlled and monitored by central banks. The supply and demand and money movement in the economy are monitored as well. As a result, central banks can print more money whenever there is a need to stabilize the flow of money in the economy.
One of the main reasons why Bitcoin is considered to be one of the most volatile assets today is because of its limited supply. Bitcoin has a maximum supply of 21 million BTC and that can never change. There is less than 3 million Bitcoin left to be mined at present. Whenever the demand in Bitcoin exceeds the holders who are willing to sell, a natural rise in Bitcoin’s price occurs.
Many crypto investors also take advantage of the volatile nature of Bitcoin to carry out different trading and investment methods. Some of them use the standard buy and hold tactic where they sell off when Bitcoin hits a peak. Some of them follow the famous crypto saying “Buy the rumor, sell the news” which has proven to be quite successful.
There are also short-term approaches to source for opportunities to profit. This is usually done by technical or certain market analysis but it can be tricky and proven inaccurate. Be sure to familiarise yourself with the crypto market as much as you can before you start doing proper investing.
Another nice benefit of Bitcoin volatility is that it creates headlines. Having heard of crypto millionaires and overnight gains brings about curiosity in people. More individuals start researching and finding out more about this market. More companies and projects start entering the space as well. This unlocks more opportunities for investment as well as give the public more confidence in this space.
For a short-term Bitcoin trader or investor, volatility might hurt you a lot. Making accurate predictions of Bitcoin’s price movement every minute or hour can be quite a pain. In April 2020 when Bitcoin price spiked from $6900 to $7300, $90 million was liquidated on BitMEX and Bitfinex.
Even trading on a daily or weekly basis can be super exhausting as prices have shown to move wildly at random timings.
Another popular phrase in crypto is FOMO (Fear of Missing Out). Due to the huge spikes in prices and huge gains people have shown, others want to get in the action as well. When prices start going up fast, people get fidgety and want to cash in on the gains as well. As more people start buying, those who have gotten in early can choose to take profit and sell.
For those who have gotten in on the later stage of the pumps, they now get stuck big time in the red. FOMO can be a very dangerous feeling but the luxurious gains of the crypto market always seem to be a huge distraction.
The major price swings in Bitcoin are one of the main reasons why it is getting so much attention. Many had their fair share of astronomical gains or devastating losses. The crypto market is still relatively small but growing nicely each year. Whether the volatility is good or bad, there are many people on each side. The question is, which side are you on?
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