Why Bitcoin Is One of the Most Volatile Investments You Could Make – 2021 Guide
Cryptocurrencies are the instruments of the future. Even with its first appearance, the fact that the world did not adopt it at first sight, showed how ahead of time cryptocurrencies were. However, it is essential to note that we had the tools to adapt it whenever we wanted.
A few significant tweaks in our financial system and technology structure would have ushered in a new era of finance and technological transactions. 2021 has been a massive year for cryptocurrencies, and we can personally talk about how it has taken the entire world by storm.
Wall Street bets Reddit is one of the most prominent players in the wall street market, and the world knows why. They’ve created wall street into a labyrinth of topsy turvy stocks just with the power of marginal investors.
The cryptocurrency market is also essentially the same when it comes to investing and trading. One of the main determinants between both platforms is the concept of volatility. It is essentially one of the main factors that determine the success or failure of a stock or cryptocurrency.
Dogecoin, one of 2021’s hottest cryptocurrencies to take a position in, really shows the indulgence and power people have over the securities market and also the crypto market.
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In this article, we’ll talk about the most popular cryptocurrency that has taken the world by storm and will continue to have exponential growth, although the road to it being pretty rocky. With that being said, without further ado, let’s get into this!
What Is Bitcoin?
Getting to the topic of the Godfather of all other cryptocurrencies, Bitcoin started the whole frenzy around cryptocurrencies. Everyone wants it, and it keeps running low on stock. Bitcoin, in simple words, is a virtual currency, a financial instrument that exists only virtually, which means digitally.
In the year 2008, a group of individuals or possibly even just one individual with a false name called Satoshi Nakamoto released a paper with the details of creating a financial instrument that was different and completely unheard of. This financial instrument which was named ‘Bitcoin’, was a virtual currency.
What was unique about this currency was that it was governed by a principle called cryptography. This principle is what sets this financial instrument as a completely different one from others.
This cryptocurrency was governed by a principle that completely encrypted the details of the data or, in this case, the ‘Bitcoin’ and made it available for only the eyes of the sender and receiver. This way, no third party could get in on the details or get their hands on this transaction.
This created a great demand for it in the following years after its creation due to its power to solve problems such as third-party intervention and thefts. Federal regulations have had a hand in regulating typical digital currency transactions, which was eliminated with the introduction of bitcoin.
Volatility means susceptibility to change. It is an obvious truth that the only thing that is predictable about our world is its unpredictability. For a world that runs on ones and zeros along with a lot of irrationality of the human mind, cryptocurrencies are one of the most volatile things in our financial world.
The key reason people either win or lose money in stocks and trading is the volatility of the stocks or crypto. The traditional law of “buy low, sell high” is governed by this volatility principle. But as everything can be good, it can also be disadvantageous. It can hamper and lead to damages in your investment portfolio as well.
Things like new economic data, innovations from a corporation, a product release or if you’re in a very very trading a company, new drug release that’s popping out, leadership changes within the corporate, leadership changes in your government, and herd mentality, which is where people are following the herd instantly we’re during a robust bullish market during which we don’t have many traders that are just following the herd.
Volatility is sometimes always associated with price changes, and that can be a misconception or a wrong way to look at it. It has more to do with the study of probability, and those understanding the laws of probability are more likely to do better with probability.
Bitcoin And Volatility
Bitcoin is very volatile because it is still in its startup stage. Even though it’s at about a trillion-dollar market cap, this is still a startup stage for a currency. Obviously, for a company like Facebook or Google, a trillion-dollar market cap is the sign of a much more mature company.
When you’re thinking about global currencies, the size of currency markets and fixed income markets, etc., a trillion dollars is still a drop in the bucket. To give you an idea, the US or, we would say, the global real estate market is about 100 trillion, so we’re still just at one per cent of that value.
Hence, bitcoin is volatile because it is still in a very start-up stage. Only two per cent of the world’s population owns bitcoin now.
What happens usually is when technology is developed, it’s developed by private companies that then go public and issue their stock to the public in an IPO or a direct listing. So a lot of the volatility of startups gets hidden that way.
There are a lot of other factors that make bitcoin the most volatile currency to invest in. The price of other coins, trends, demand and supply, and availability of the crypto also make a difference in its instantaneous price level.
It can be a little hard to keep track, but if you’ve got the right mentality while investing and trading, you can make good money out of it. One thing is for sure though that despite its volatility, the price of bitcoin will only go up in the coming few years.