Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
Volatility is an important Wall Street term that investors and traders use to measure the level of risk associated with an asset. Assets with large price swings are considered high-risk investments while assets with minimal price movements over time are considered low-risk assets. Volatility has also found room for expression in the world of cryptocurrency trading and investing as traders and investors measure the movement in the prices of cryptocurrencies within a certain period.
People interested in trading or investing in Cryptocurrency will do well to understand the factors influencing volatility in the markets so that you can maintain trading discipline when the markets start to move in favor or against your positions. Here are the four major factors that trigger volatility in the price of Bitcoin.
1. News reports detailing supports/criticism often moves prices
Bitcoin is still in infancy and many traders and investors don't really know what the future holds for the cryptocurrency in terms of scalability, sustainability, mass-market adoption, and government support. Hence, people pay attention to news events in order to gain insight into how geopolitical events, government activities, and statements by credible influencers could shape perception around the cryptocurrency.
When the news reports are positive, such as a 2017 rumor that Amazon was about to start accepting Bitcoin, the price of the cryptocurrency usually shoots up. When the new reports are negative, such as the recent KYC requirements in South Korea, investors tend to panic and the price of the cryptocurrency will nosedive. Hence, the successful Bitcoin trader and investor will develop a knack for spotting developing news stories and taking proactive action in line with how such news reports are likely to move the markets
2. Perception about the inherent value of Bitcoin causes its price to fluctuate
Nobody really knows what Bitcoin is worth – that's the brutal truth, and its price is a function of the dynamics of demand and supply per time. In the first Bitcoin transaction in 2010, 1BTC Bitcoin was only worth $0.002 when a $20 pizza was sold for 10,000 BTC. As at November 2017, Bitcoin had crossed a record high of $20,000. The price of Bitcoin tends to rise when people are optimistic about its inherent value because of its limited supply at 21 million BTC. However, people are scared that Bitcoin is probably not a "tangible" currency backed by any government, the price usually take a hit.
3. Perception about Bitcoin's suitability as a store of value
Bitcoin qualifies as money because it is a store of value that accepted by millions of users as a means of exchange. The fact that Bitcoin provides a frictionless transfer of value without the oversight of a third party also promotes its peer-to-peer superiority over fiat currencies. Nonetheless, one can't deny that the transactional purpose of Bitcoin is somewhat debatable. To start with, not many people can afford to own a full unit BTC at its current price around $11,300. Of course, you can still conduct Bitcoin transactions in Satoshi or decimal fractions of a full Bitcoin.
Nonetheless, not many people are interested in doing the maths on what $100 is worth in Bitcoin every time they need to make a trade. The more worrisome trend is that the inherent volatility in Bitcoin means that transactions usually end up being settled for less/more fiat than the original transactional value.
4. Bitcoin whales have too much influence on the market
The Bitcoin industry has some powerbrokers known as Bitcoin Whales –they are the 1000 investors who own a combined 40% of the Bitcoin market because of the sheer size of the amounts of Bitcoin that they individually own. The total market capitalization suggests that the cryptocurrency is still small by Wall Street standards for currency. Hence, if too few people own too much "currency" they could move prices as they please. Wall Street has regulations in place to protect retail investors from price manipulation by individual/institutional players, but such regulations are not yet effective in the cryptocurrency market.
Interestingly, the huge influence that Bitcoin Whales have on the markets also puts them at the risk of liquidity issues. An investor with more than $10 million in Bitcoin might find it very hard to exit the market without the risk of triggering a selloff that could slash the $10 million in half.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.