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3 main reasons to understand Bitcoin volatility

The cryptocurrency market has been growing during the last ten years since Bitcoin (BTC) was created. Indeed, the most popular digital asset grew up to $20,000 at the end of 2017. Because of this, the market gained traction and increased its popularity among investors. Other coins such as XRP or Ethereum (ETH) surged as well in the last years.

During these ten years, the market has been fluctuating a lot. Indeed, prices could move in just a few days more than 20% without an apparent reason behind this wild price fluctuations. There are some things to take into account to understand why prices changed in this way.

About supply and demand

The first important thing is to think about supply and demand. This is a very concept that plays an important role in determining the price of a digital asset. The supply and demand of cryptocurrencies tend to fluctuate depending on the public opinion. However, most of the virtual currencies have a limited supply. That means that the supply of digital assets does not change if there is an increase in the demand.

Back in 2017, Bitcoin moved from under $1,000 up to $20,000. In 2018, Bitcoin decreased from around $14,500 down to $3,200. This shows that the price of Bitcoin and other cryptos is not easy to be predicted. Some days, the price of the most popular cryptocurrency could fluctuate more than $300.

The media and the crypto market

The media is also a key player in the crypto market. When news sites covered the news about China banning Initial Coin Offerings (ICOs) back in September 2017, Bitcoin dropped from $5,000 down to $3,000 in just a few hours. Depending on how the media reports things, the price of Bitcoin and other cryptocurrencies will move accordingly.

As the market fell during 2018, some experts started to talk about how important is to follow the advancements in technology. Although Bitcoin dropped the last year, the network continued to grow and expand, and the same happened in other virtual currencies.

Technology and Bitcoin… allies or enemies?

If the technology keeps moving ahead, it will be important to understand how it can affect the price of digital assets. For example, the Lightning Network (LN) is being developed and could be launched in the future. If that happens, how will this affect Bitcoin’s price? Ethereum is currently going to experience a hard fork called Constantinople, once it happens ETH supply will be reduced, clearly this could have a positive effect on the price of this virtual currency.

Bitcoin and cryptocurrencies could work as a store of value in countries with political and economic problems. If there is a currency crisis in a specific country such as Venezuela or Zimbabwe, individuals in these places could start embracing digital assets. This has clearly an effect in the demand of virtual currencies.

There are many different factors that affect Bitcoin’s prices at all times. The market is being influenced in many ways and this modifies the price that users’ are willing to pay for a single BTC or other coins.

What is going to happen?

As the volatility in the market is very high compared to other assets, is generally difficult to predict future price movements. At any moment, any of these situations mentioned before can change the trend of the crypto market.

Currently, digital currencies are operating stably. However, there are some experts that believe that Bitcoin could keep falling. After this, it would start to grow once again throughout 2019.

Also published on Medium.

Published inCryptocurrencies

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