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what causes bitcoin volatility

Bitcoin's price is notoriously volatile. But what causes this? Is Bitcoin itself just a bit fickle? We know that the more volatile the price of an investment is, the more risk you take on by putting your money in it and the higher returns you potentially stand to gain.

The market is still relatively small, so this is a considerably reasonable rate; and not that variant to gold and most major currencies which have far larger, more mature markets.

Bitcoin is relatively young, having only been around since By contrast, the internet has been around since the early s, space travel since and artificial intelligence since It takes time for a new technology to evolve and find its place in our lives. At first, few people know about it or use it. Then, it gradually gains mainstream awareness and suddenly everyone is talking about it.

Outlandish claims are made, exaggerations abound and the level of hype becomes ridiculous. Then reality sets in and the hype calms down. But behind the scenes, the technology continues to improve and becomes a productive part of our lives. Unlike many new technologies, we have an obvious public sign of where Bitcoin is in the hype cycle: its price. Bitcoin is both a new technology and an investment. Bitcoin is still going through that cycle as we all figure out its purpose and how it will add value to our lives.

Whatever the price charts say, companies like Luno are working behind the scenes to help its adoption and ensure it matters in the long run.

Much of the available Bitcoin is held by a few people. The result is limited liquidity. This was the case for cryptocurrencies in the past. Many of the largest Bitcoin holders were unwilling to sell under any circumstances. This would push the price up until more people sold. The same happens in reverse. If a lot of people decide they want to sell their Bitcoin at the same time, there might not be enough buyers.

Prices might then drop, until the lower price attracts more buyers. This helps to even out prices. When the price of Bitcoin drops, investors tend to experience what has come to be known as FUD: fear, uncertainty and doubt. They fear the price will keep dropping. They are uncertain if it will ever increase again. They doubt themselves for investing in the first place. So then they sell their Bitcoin. Price changes are a normal part of any market.

They fear missing out on a chance to get rich and they expect the price to continue increasing. So they start buying Bitcoin, increasing the demand and increasing the price. This enhances natural fluctuations. One way to think of this is to imagine you are buying a new laptop. Our FUD might make us sell it when the price is lower because we think it might get even lower.

These are just a few of the factors affecting the price swings of cryptocurrencies like Bitcoin. The price can change in moments so the value of your investment will change over time, perhaps by a lot.

Try not let strong emotions get the better of you. Doing your own research, and speaking with financial experts will help you make a more educated decision. If you want to monitor the price of Bitcoin or Ethereum, you can easily set up price alerts in the Luno app.

On our way to the moon, we write about all things crypto. Our blog conveys the views of Luno and the many unique opinions and characters within our team. Want to let us know how much you love our blog? Tweet us lunomoney. Price charts Bitcoin price Ethereum price Bitcoin Cash price. About Company Careers Press. This is no different for Bitcoin. Bitcoin is still a new technology Bitcoin is relatively young, having only been around since New technologies go through what is known as the hype cycle.

Liquidity refers to how easy it is to buy or sell something, without changing its price. Bitcoin price is sensitive to the news Buy the rumour, sell the news.

Common news items that affect the price include: Articles about new regulation or action from banks and governments e. Jamie Dimon , John McAfee News of hacks or security breaches Rumours and incorrect information These are just a few of the factors affecting the price swings of cryptocurrencies like Bitcoin. Hot topics.

what causes bitcoin volatility

Bitcoin Volatility Time Series Charts

Price fluctuations in the Bitcoin spot rate on the Bitcoin exchanges is driven by many factors. News events that scare Bitcoin users include geopolitical events and statements by governments that Bitcoin is likely to be regulated. Bitcoin's early adopters included several bad actors, producing headline news stories that produced fear in investors. Others include the high-profile use of Bitcoin in drug transactions via Silk Road that ended with the FBI shutdown of the marketplace in October However, Bitcoin-friendly investors viewed those events as evidence that the market was maturing, driving the value of Bitcoins versus the dollar markedly back up in the short period immediately following the news events. One reason why Bitcoin may fluctuate against fiat currencies is the perceived store of value versus the fiat currency.

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It has become a new asset class for storing your wealth and a perfect vehicle for the modern world to protect their purchasing power. More than ever, people around the world are talking about this magical internet money. But just like the saying, there are always two sides of the coin , some are optimistic while others are pessimistic about Bitcoin. On the other hand, pessimistic because Bitcoin is very volatile and is a Ponzi scheme where no one will benefit. Anything that trades in a free market without regulations will be highly volatile. I know some of you may not understand what volatile or volatility means in the crypto space and that is what brings me here today. Above is the gold market compared with the BTC market and it clearly shows the kind of ups and downs the gold market had when it first traded in the free market.

Suffice it to say that bitcoin isn't an asset for the faint of heart.

The price of Bitcoin gets wild. Volatility basically means how much the value of an asset changes over time. A highly volatile asset like Bitcoin can see its price move dramatically in only a few hours.

The opposite of volatility is stability. This is very high compared to gold, which is around 1. Bitcoin has become generally less volatile over time as the price and total market cap has increased. Volatility is not necessarily a bad thing. More than anything else, volatility is a sign of risk, which can be appealing to some, but alarming to. If you are holding Bitcoin, the ride can be euphoric on the way up yet terrifying on the way.

Below we take a look at some of the contributing factors to what makes bitcoin so volatile. Bitcoin is just a small boat in the big ocean of assets. By comparison, Apple, the largest single U. Relative to what causes bitcoin volatility rest of the asset world, Bitcoin is still tiny. This small market size magnifies the effect of all the other factors that influence volatility. Whales are the owners of large Bitcoin holdings and when they move their Bitcoin around, they can easily rock the little Bitcoin boat.

When a whale trades a significant amount of Bitcoin it has an effect on the entire market, which does what causes bitcoin volatility happen as easily in bigger markets like gold or stocks.

Liquidity is how readily an asset can be what causes bitcoin volatility or traded. To have a lot of liquidity there needs to be many ready and willing buyers and sellers in the market. With less liquidity, the Bitcoin boat gets rocked even more easily, especially when a whale is involved.

Be the first to get Decrypt Members. A new type of account built on blockchain. Because Bitcoin is an emerging technology that has never really been seen before, news and rumors can have a big effect on the price. Traders are constantly trying to predict how a piece of news like the hack of a major exchange or rumors of a ban on Bitcoin in a certain country will have on the markets. Did you know?

At its core, Bitcoin is simply a piece of software that people all over the world decide to voluntarily use and develop. Forks happen when there is an irreconcilable difference among developers and users and as a result, two incompatible versions of the software exist at the same time. Forks and the anticipation of forks cause more uncertainty about the future of Bitcoin, which causes more volatility as traders try to predict what will happen and make new trades accordingly.

The most significant Bitcoin split to date has been. However, because of its volatility, many believe it now to be less of an electronic cash system and more like a store of value gold. Its harshest critics say Bitcoin should be worth nothing because there is nothing backing it up.

True What causes bitcoin volatility believers say that its decentralized and limited supply means that it is potentially more valuable than any other existing asset. Read more total Bitcoin and crypto-asset market will grow over time as adoption increases, regulations are clarified, and institutional investors decide to participate.

As institutional investment increases so will investment in the technology and businesses that support Bitcoin, which will further increase adoption.

Though there will almost certainly be extreme volatility for many years and possibly decades, the volatility will decrease over time as our little Bitcoin boat gets bigger and better at withstanding the waves of the market.

Early access. Learn Technology Guides. By Ki Chong Tran. What is Volatility? Want more from Decrypt Learn? Load More. Close Menu. Open Menu.

What Does Volatility Mean?

This creates downward pressure on bond prices and provides tailwinds towards an equity rally. If you want to monitor the price of Bitcoin or Ethereum, you can easily set up price alerts in the Luno app. This defensive moat created by the network effect cannot be underestimated. Erratic and hard to predict. Popular Courses. This whqt what trading in cryptocurrencies is really all learn more here. They are uncertain if it will ever increase. Others include the high-profile volatilityy of Bitcoin in drug transactions via Silk Road that ended with the FBI shutdown of the marketplace in October There are no assurances provided to consumers when they invest in a business with no consumer protection laws coming into play. When the price of Bitcoin drops, investors tend to experience what has come to be known what causes bitcoin volatility FUD: fear, uncertainty and doubt. Therefore, the only reason you would buy an apartment is cauzes you believed real demand for living in the neighborhood will grow. They reduced the overall float of Bitcoin by approximately, producing a potential lift on the value of the remaining Bitcoin due to increased scarcity. Cryptocurrency A cryptocurrency is a digital or virtual currency that uses cryptography and is difficult to counterfeit because of this security feature. The what causes bitcoin volatility of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. Thereafter, there is no poker game, but the players simply sit around and trade chips based on what they think the chips might be worth at the end of the game.

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