5 Reasons Why Bitcoin Price Fluctuates
The fluctuation of bitcoin’s price depends on many factors. In traditional markets, a volatility index is used to measure the fluctuation of different assets. Similarly, an index is also used for the volatility of bitcoin. The bitcoin volatility index helps to track the price fluctuations of the most popular virtual currency.
Reasons for Volatility of Bitcoin
The price of bitcoin has been fluctuating from the beginning, and there are several reasons behind it. Here are the five main reasons for which the value of bitcoin is volatile.
Although there are some other reasons which also have some effect on the fluctuation of bitcoin’s value, these are the most important reasons, so let us look at them carefully.
Effect of News
The effect of bitcoin news is the essential factor that affects its value. When there is bad news, the value will go down as investors will sell off their position, thinking that the value will go down. Secondly, if there is good news related to bitcoin, the value of bitcoin increases. To know more about the bitcoin trading you can follow this link
In the past, Mt. Gox and the Silk Road, the biggest frauds related to bitcoin have a very bad impact on bitcoin’s price. There are many other money-launderings, and fraud cases that have caused price fluctuation of bitcoin.
Fixed Supply with Varied Demand
The second important reason for which the value of bitcoin fluctuates is due to the varied demand with a fixed supply. As you know that there can only be 21 million bitcoins, there is no possibility that bitcoin can be managed by varying the supply like fiat currencies.
However, the demand changes according to different situations of the economy. As bitcoin is considered as a store of value like gold during economic instability, many people invest in bitcoin. So the value of bitcoin fluctuates due to these factors too.
Uncertainties of Its Future Value
Nobody can clearly say what will be the future value of bitcoin. As bitcoin is considered as a store of value during economic instability, people want to predict its future value.
However, they are not able to predict its future value due to the present volatility of bitcoin. So, there are no certain factors based on which we can forecast the value of bitcoin. It depends on some random factors like news, financial crisis, etc.
Another primary reason for bitcoin’s volatility is security breaches. When there is an expose or discussion of any security vulnerability in any bitcoin community, bitcoin fluctuates.
The open-source platform allows the bitcoin miners and users to think about the bitcoin’s algorithm and source code. People spread security concerns in various bitcoin communities, which is a major cause of bitcoin volatility.
Fear of Loss
Although bitcoin is the most valuable and trusted cryptocurrencies, there is a fear of loss due to the high-profile loss in the past as bitcoin’s value rises and fluctuates without any range. Traders and investors fear whether they can’t be able to bear the loss.
Most investors look at bitcoin as a speculative investment due to some notable fraud cases like Mt. Gox. So, there is a fear among investors about losing their money in the market. However, governments are taking the necessary steps to develop proper infrastructure for bitcoin and other cryptocurrencies.
The above reasons cause fluctuation in the price of bitcoin. Apart from that, other reasons are tax treatment, high-inflation, and large currency holdings, also causing bitcoin price fluctuation. If you want to invest in bitcoin, then keep these factors in mind and invest in it. However, for trading purposes, you need to focus on technical analysis and news. Hopefully, the above post has provided you some useful information on the volatility of bitcoin.