Life for Bitcoin traders can be highly surprising. Bitcoin, founded in 2009, is the first and most famous cryptocurrency to date. Although a few other digital currencies are currently more valuable than Bitcoin, it is one of the most exciting and volatile currencies in the crypto market.
Investors worldwide are divided by the doubt that Bitcoin is still as reliable now as it was a couple of years back. While its growing popularity and significant investments from industry leaders such as Tesla and the Bank of New York Mellon Corp., BTC has lost 30 to 40% of its market in its short existence. So what causes the value of the world's first cryptocurrency to be so volatile?
Panic Shakes the Stakes
Controversies, alleged rumors, and misinformation are the top reasons for Bitcoin's volatility. We see a common practice in our daily lives, in the national press, and on social media is the dangerous and fast spread of fake news. A piece of intentional misinformation can hurt the market value of cryptocurrencies, and due to a lack of central control, investors choose to withdraw their money to avoid potential losses.
However, not all news is a rumor. Sometimes a piece of real news that may affect the investors directly or indirectly, or is not worthy of action, scares the users easily. Investors withdraw large chunks of investment altogether to ensure they don't lose their money, creating a huge dip in the crypto market.
Lack of Regulation
Like all of its other competitors, Bitcoin is also a decentralized currency due to the blockchain technology it uses. Blockchain technology is spread across the world, and as every currency has its own blockchain, it is difficult to involve a centralized institution that controls the regulation of Bitcoin.
Nevertheless, government organizations around the globe are making efforts to constrain the growth of cryptocurrencies by introducing new policies and restrictions. The new IRS policy stating cryptocurrencies as taxable property is an example of how government intervention adds to the volatility of digital currencies like Bitcoin.
Differing investor profiles and experiences are another great reason for the sharp dips and rises of Bitcoin in the crypto market. Unlike some traditional markets, like banking, there are no considerable high barriers or requirements to enter the industry. Anyone with the internet and enough investment to buy a single Bitcoin can be a trader. There are no rules or any security deposits to ensure safe and long-term investment in the crypto market.
Hence, these calm conditions allow all users, especially retail investors, to put in their savings in Bitcoin due to its promising future on their terms. The crypto market has seen a 17% rise in retail accounts after Covid-19. The more accepting the market is for various investors, the more inexperienced investors can enter to reap short-term benefits. While the serious buyers keep their calm with slight changes in the values and aim for long-term profits, the inexperienced users look to sell, creating major gaps in the market cap.
Large Currency Holder Risks
The Bitcoin Whales, holders of large proportions of the total market cap of Bitcoin, drive the volatility factor of the currency to a major extent. These investors have tens of millions or more pumped into the market. It is obvious that should any of them choose to liquidate their assets, it can't be done without significantly denting the value of the given currency. There may be a way in the future, but currently, Bitcoin's market cap has not reached mass adoption value that provides value to the Bitcoin Whales.
Despite Bitcoin receiving large investments from global firms and being accepted as a mode of payment by some governments, Bitcoin still holds a volatile value. However, the bitcoin circuit is a knowledge factory that allows you to deeply understand the crypto landscape, so you can find the formula to stabilize the profits you gain from investing in Bitcoin.
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