What Causes Bitcoin to Fluctuate So Much – 2022 Guide
If you are about to enter the cryptocurrency market, you should prepare yourself for a quite bumpy ride. Before you even start thinking about this sort of trading, you need to be aware of many different things. The reason is quite obvious, this market has a plethora of unique aspects and factors that are simply not present in any other market. Sometimes, understanding all of them can be quite a challenge.
A vast majority of traders out there want to start with investing in Bitcoin, for obvious reasons. To have a proper start, you should choose a proper platform. Making this decision isn’t easy, and you should always look for more information on all the options you have. The most important question to address about BTC and any other cryptocurrencies out there in the market’s volatility.
Now, let us provide you with some relevant information on this topic.
Value and Volatility
It needs to be said that this market’s volatility is caused by a wide array of different factors. You have surely heard a story about Elon Musk’s tweets about his company’s decision not to accept Bitcoin as a regular method of payment. The series of tweets we’re talking about has caused the massive drop in BTC’s value. When Tesla started accepting them once again, the value started rising slowly.
Not to mention that the decision made by China’s government, which meant that BTC will be banned completely in this country, has made a significant impact on the market. The latest example of BTC’s value being impacted by certain occurrences is how the troubles in Kazakhstan have influenced the value to drop once again. You will agree that there are a lot of aspects that can influence it severely.
Thankfully, the developers behind different cryptos have made a statement that they will strive for more independence in the future. For instance, Vitalik Buterin, one of the developers responsible for Ethereum, has stated that they will make ETH independent from all of these situations and that this crypto’s value will depend solely on the movements on the market. So, this statement has set a precedent many other developers will follow in the future, we are certain of that.
Is BTC Too Volatile?
Even though BTC has established its position as the older and most valuable crypto on the market, many think that its volatility is the main reason why its future is still uncertain. On average, these fluctuations can be as high as 10% per day, which makes it pretty unstable, right? At the same time, nobody can deny that cryptocurrencies, as a concept, are an improvement from traditional financial systems.
The only thing that can provide this digital currency with much-needed stability is a wider adoption. In the last couple of years, we can see that some countries have decided to do just that. But this is not the only aspect. There are many companies out there, like Tesla, that have decided that they want to adopt BTC as a method of payment. So, this is a major factor in the rise of value we’ve witnessed in the last decade.
The Commonest Factors
Now, we would like to talk about the commonest factors that have a say in BTC’s value.
The most obvious movement on the market that impacts the BTC’s price is how many people use it and for what reason. For instance, making purchases with BTC will help the price rise. Holding coins on an e-wallet will not have any influence on it. That’s why a wider adoption is a crucial factor.
Scarcity addresses how many of certain coins are out there. For instance, the final value of any crypto will be determined when all the coins are mined. As you probably know, the projected limit for BTC is 21 million. However, we will need to wait for about 100 years before all of these are produced.
There are situations when a large number of traders start selling their digital assets on the market. When this happens, a crash in price is likely to happen. Those traders who do it all at once are referred to as whales. We believe that the meaning behind this name is rather obvious.
The production costs in the world of cryptocurrencies address the mining process. Mining these can be costly. Not only that you will need to pay high energy bills, but you will also need to purchase specialized equipment. Without owning it, you cannot count that the process of mining will provide you with any benefits. Obviously, verifying the blockchain requires significant computing power.
When these blocks are verified, the miners have a chance to receive some parts of a coin, no matter what crypto we are talking about. Why is this important for the market’s fluctuation? Well, we’ve already stated that mining is a necessary factor in determining the price. Plus, the higher the mining costs are, the value will become even higher.
A decade ago, BTC was pretty much the only big player in the market. But when you take a look at it now, you’ll see that the competition is rather steep. Other big players out there are Ethereum, Ripple, and many others. Not to mention that new digital assets and cryptocurrencies are produced and released pretty much every day. Some of them have significant potential.
Sometimes, a newly produced crypto can gain momentum and reap the benefits out of its competition. In the case of BTC, you can see that this is an obvious step. It was the first one, and all that followed had it for some sort of role model. Therefore, it is rather obvious that BTC’s price is also determined by the competition and its performance on the market.
Market volatility is the most significant trait in the case of Bitcoin. Here, we’ve discussed all the relevant factors that play role in price regulation. Understanding all of these will provide you with enough information to know when and how to act to gain maximum profits.