Bitcoin came into existence in 2009, and it became popular in 2010. At that time, the price of one BTC was too less, i.e., $0.09. People who had previously invested their money in this cryptocurrency have become millionaires now. Within a few years, the price of BTC keeps fluctuating, and now, it has become an expensive crypto asset. Even if you consider the current status of this digital currency, it is still very volatile.
It is a query why it fluctuates so much. There are several reasons behind the constant fluctuation in the price of BTC. You can check out the price list of different cryptocurrencies and know how to trade. Many factors affect the crypto market price, and you must know them. Before you invest in any digital currency, you should know its price fluctuates too much. In this write-up, we will discuss those reasons.
Factors that Lead to BTC Volatility
1. Demand and Supply
It is not about cryptocurrencies only. This rule applies even to several commodities. When there is excessive demand and supply of any item, it becomes expensive. The market value of the digital currency gets affected by coin circulation worldwide. When Bitcoin was introduced, Satoshi set a specific limit, i.e., 21 million.
When the supply of this digital asset reaches 21 million, it starts getting expensive. The best time for the investment is before the price goes high. When it reaches the limit, you can sell your assets to make profits. But it is pretty complicated to predict anything when it reaches the limit. You need to understand that you do not get any profit if you mine it after exceeding the limit.
Therefore, it is necessary to consider this factor and observe how the market is dealing with BTC demand across the globe. Many expert traders compete to get ownership of the supply. The price starts fluctuating too much in return for their actions. Like another commodity, BTC gets affected due to this factor.
2. Investing Actions by Big Investors
Bitcoin is quite a famous cryptocurrency, and it has become a favorite one for big investors. The price of one BTC is in the millions, and one can become rich if anyone deals in it. When the supply of BTC gets limited, it comes in high demand. If we talk about experienced investors, they have already had Bitcoins in their digital wallets. They have already gained exposure, and they know the value of this digital currency.
If an investor had held this virtual asset, the selling price of those assets would be too high. If we talk about the price fluctuation, then it is because of these investors. When any whale investor starts selling their Bitcoin, the market will affect, and the price will fluctuate. Other investors may get panicked because they will think that the price of BTC will drop soon.
Therefore, they will sell their shares. It can affect the market severely. There is a limit on different exchange platforms on liquidating the amount in a single day. If the asset’s market value drops, the investor cannot make out his losses because he cannot withdraw more than that limit. After considering such a situation, many people will start selling their crypto assets, and it will cause massive losses.
3. Flashing News on BTC
Every news channel wants to show its audience what is trending in the market. Likewise, BTC is quite a trending topic, and everyone knows updates about this digital asset. This news channel contacts the experts and shows information about their conversations. They publish their opinions on BTC.
An expert who holds this digital currency will say that the market value will soon go high, and it is quite profitable to make investments. On the other hand, many hypes will consider other newly-introduced crypto assets for investing in getting a small market share. It is also a way to get the media’s attention and the people who are watching the news. When anything is flashed on the news, the price fluctuation happens.
The price of BTC gets affected by the change in regulations. But it is essential to analyze and debate how regulation can affect the fluctuation in the market value of a crypto asset. Generally, government agencies are working hard to understand why BTC fluctuates due to regulations. As per the IRS, BTC is a convertible digital currency, and it is considered an asset for investment.
If you are mining this asset, you need to inform the government authorities when you receive one. It is illegal to make BTC transactions as per the China government. As per the state council, the process of Bitcoin mining has shut down in many countries. When the mining process stops, there is a drop in the price of Bitcoin. It leads to more investors.
5. Beginner Phase
If we compare Bitcoin with gold, then it is a physical and stable way of investment. The market value increases as per the demand and supply of this commodity. Similarly, fiat money exists, and it is available to people across the globe. The price fluctuation is typical in different countries like gold. The volatility depends on the country’s economic circumstances.
If we talk about the current state of Bitcoin, then it is still in the price discovery stage. The market will fluctuate until it involves investors, government authorities, and other buyers. It is hard to say when it will get stabilized. Sometimes, it is hard to understand the volatility of BTC.
The Bottom Line
BTC is highly volatile as its market value depends on all the mentioned factors. If you invest in it, make sure that you analyze the market situation properly. For some people, it is difficult to handle the rigorous price fluctuation because they can lose all their money within a minute. Therefore, it is necessary to understand why this digital asset fluctuates too much and how you can make a profit through it.