Why Bitcoin Volatility Is Something You Should Understand



Nov. 4 2021, Published 3:50 a.m. ET

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One of the many things that make Bitcoin (BTC) very popular and talked about today is its ever-changing value. Back in its early days, Bitcoin was worth almost nothing and it took a couple of months before it reached the 1 USD mark. But after more than a decade of reigning in the crypto market, Bitcoin hit a skyrocketing price of nearly 65,000 USD this year, which was its all-time-high.

Now, you might be wondering about what causes the prices to rise and fall. But, more importantly, is this volatility a good thing or not? Let’s find out.

The roller coaster ride

Before we go any further, let’s talk through what volatility is for a bit. In the financial world, volatility is the statistical measure of the probability of an asset or security to either soar or dip sharply in a short period of time. The same concept applies to cryptocurrencies, most especially Bitcoin.

Most of the time, the price changes of BTC are highly affected by movements in the market, such as a growing or declining trade volume, among other things. Like other asset classes, investing in crypto comes with potential risks. However, it’s also important to mention that, unlike other assets, Bitcoin is considered among the riskier ones available in the market today.

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So what causes its value to fluctuate wildly? Here are some of the many factors that affect the roller coaster of Bitcoin’s price:

● The limited supply of 21 million BTC

● The level of its market demand

● The operational cost of mining and acquiring Bitcoin

● The availability of Bitcoin in different crypto exchanges and marketplaces

● The stand of every jurisdiction on Bitcoin use

● The geographical limitations and potential legal requirements or restrictions

● The scalability of its software or forks

Note that the things we’ve included are just some of the most common causes and this list can still go on in the coming years.

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The good and the bad of Bitcoin’s volatility

After going through the most common reasons behind BTC fluctuations, let’s take a look at how they can affect your crypto trading journey.

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Local currencies like US dollars and other fiat money are printed and distributed by central banks. This means that the government controls and monitors its flow and movement in the economy. When needed, they can reproduce money and distribute it to their country to stabilize the economy or meet other financial needs. This only means that fiat currencies have a limitless supply.

On the other hand, Bitcoin is capped at 21 million BTC and this limit is among the primary reasons behind its highly fluctuating value. Over 18.74 million BTC is now in circulation and this means that there are only 2.25 million BTC left to be mined. The number of supply highly affects Bitcoin’s price and it can shoot up, especially when the demand surpasses the number of holders willing to sell.

Many traders and investors in the crypto market take advantage of Bitcoin’s volatility to lock in high profits by engaging in different short-term and long-term investment methods. Some investors use the buy-and-hold strategy, where they buy amounts of BTC and hold them for a certain period. On the other hand, many people prefer to buy on dips and sell on peaks—they often wait for BTC’s value to rise before they put it on sale.

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Apart from that, BTC’s price surges never fail to make noise in the finance world. Because of this, more and more crypto enthusiasts, personalities from different industries, and financial institutions are getting fascinated by the wonders they hear about Bitcoin. This is one factor that drives them to invest in BTC and try their hands on cryptocurrencies, making Bitcoin adoption and demand to increase.

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While volatility can magically cause Bitcoin’s price to shoot up, it can also cause the value to decline dramatically. When this happens, many investors, traders, and crypto enthusiasts may feel FOMO (fear of missing out). This tricky feeling and thinking can push them to either let go of their coins or hold on to them and buy even more.

When BTC’s value surges, you can either feel bad that you don’t have enough BTC in your wallet or be grateful that you’ve earned from the precious coins you’ve held on to. On the flip side, when Bitcoin’s price dramatically declines, you will either do your best to learn how to buy Bitcoin right away or regret that you actually bought more.

If you’re leaning towards buying on price dips, you can easily do so on Paxful by creating a free account and buying Bitcoin directly from crypto vendors listed in the platform. You don’t have to fork out thousands of dollars as you can start with as little as 10 USD.

Some crypto enthusiasts also sell BTC when its price starts to pick up an upward momentum. However, it’s important to note that its value can either plunge sooner or spike again later because of Bitcoin’s volatility. If you’re interested in selling Bitcoin when its price peaks, you can also do so at Paxful to earn a decent amount of money

Yay or Nay?

If you think of it, Bitcoin won’t be making headlines today if it wasn’t for its highly volatile characteristic. Its powerful uses can reach even the remotest parts of the world without a doubt. Still, its volatility is what makes it highly fascinating and dominating among all assets in the market.

So, is Bitcoin’s volatility good or bad? The answers may vary depending on who you are in the crypto world and what you actually do with this coin. We’ll leave it to you to decide. Good luck on your crypto adventure!

This article was written by Sophia Anderson and originally appeared on Your Coffee Break

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