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Bitcoin – the world’s largest digital currency by market capitalisation, has led to some incredible returns for certain investors. We have all heard tales of ‘Bitcoin Millionaires’- people who got rich by investing in the cryptocurrency and holding it long enough to gain a considerable profit.
However, many people attribute this to Bitcoin’s highly volatile nature since the digital currency experiences significant price fluctuations.
Price fluctuations in the Bitcoin spot rate are determined by many factors. Volatility is usually measured by the Volatility Index, also known as the CBOE Volatility Index (VIX). The Bitcoin Volatility Index has also recently become available to track the volatility of Bitcoin over different periods of time.
Bitcoin’s value has been historically quite volatile, but why?
Here are a few of the several factors behind Bitcoin’s volatility:
Small Market Size
Just like other digital currencies, Bitcoin’s market is relatively small when compared to markets for traditional assets such as stocks, bonds and fiat currencies. The total market capitalisation (market cap) of Bitcoin pales in comparison to the scope of these traditional asset markets.
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Why does this matter? Large markets are more resistant to manipulation than small markets. Bitcoin’s market value is aggregated from several exchanges. In other words, the total figure represents several different markets.
While the changes in supply and demand could be due to shifting market sentiment or investors reacting to some news, they could also be caused by efforts to manipulate the market. All it takes is one major investor or a group of smaller investors working together to create a sharp gain or loss in the value of a particular digital currency.
News
News is a major factor that contributes to the volatility in Bitcoin prices. When news is positive, it can drive investor interest and cause market participants to buy Bitcoin, pushing its price higher.
Media outlets have also published plenty of negative news surrounding Bitcoin which leads to sharp and sudden price drops.
Regulation
The first Bitcoins came into existence in 2009. Since the inception of Bitcoin, multiple governments around the world have made efforts to regulate Bitcoin and other digital currencies. This is another area potentially contributing to Bitcoin’s intense volatility.
While various governments have initiated efforts to develop regulations for Bitcoin and other digital currencies, lawmakers and regulators have not yet worked together to create regulation that spans many nations.
Inequality of Wealth
Data from BitinfoCharts shows that in 2017, the top 10 largest Bitcoin wallets held roughly 10% of the currency.
If a person collects a sizable amount of Bitcoin, he or she can trigger substantial price fluctuations by selling a fraction of his or her Bitcoin holdings.
Sentiment
If the sentiment surrounding Bitcoin becomes more positive, this can contribute to sharp increases in demand and upswings in price. Furthermore, price gains and optimism can combine to create media hype cycles that take place when climbing values cause greater media coverage. This triggers additional purchases and price appreciation.
Changes in sentiment can have the exact opposite effect on price. If investors start fleeing an asset like Bitcoin, the plunging prices can prompt widespread media coverage, causing even more people to either sell or simply avoid purchasing it.
Speculation
Several observers of the market have noted that speculation plays a key role in Bitcoin’s price fluctuations.
Bitcoin is a speculator’s dream, the only thing that will impact its price is how other investors believe the price is going to change. This is why selling futures contracts and other derivatives in Bitcoin can be both fruitful and frustrating depending on speculation and the eventual outcome of it.
Cryptocurrencies like Bitcoin are volatile because at the end of the day they’re all about speculation.
Conclusion
The market won’t stay so volatile forever as technological improvements should make transactions easier and more secure, increasing the popularity and stability of the cryptocurrency.
However, that being said, the Bitcoin market will seemingly stay volatile for the foreseeable future. Is this a problem for new investors who are unfamiliar with cryptocurrencies?
The answer to this question is subjective and largely depends on your perspective.
Bitcoin’s volatility should not prove to be a massive problem if you take it into account when creating an investment strategy. It opens up new opportunities for both experienced and inexperienced investors.
It’s safe to say that investors who are interested in investing in Bitcoin may benefit significantly from conducting research and examination before getting involved. So, educate yourself sufficiently before diving into the world of Bitcoin.
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Frequently Asked Questions
How Can I Convert Bitcoins To Cash?
Bitcoin may be converted to cash in various ways, including crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, and Peer to Peer Transactions. You may do this by using Bitcoin exchanges like WazirX. You may also sell Bitcoin for cash faster and more anonymously through a peer-to-peer marketplace.
Is Bitcoin A Good Investment For The Future?
Some investors are afraid of the risks or devastation, but others are very eager to pursue the possibility of profit from a Bitcoin investment. A Bitcoin investment is similar to stock investing, except it can be more volatile.
How Much Is 1 Bitcoin Worth Today?
Check out the current price of Bitcoin on the WazirX exchange. Bitcoin's value is primarily determined by its supply and demand in the market. Other elements have an impact on its worth. Its intrinsic value can also be calculated by calculating the average marginal cost of producing a Bitcoin at any given time, based on the block reward, electricity price, mining hardware energy efficiency, and mining difficulty.
How To Create Bitcoin Account?
Firstly, Go to the WazirX website and sign up. Then, a verification mail will be sent to you. The link sent via verification mail would be available only for a few seconds so make sure you click on the link sent to you as soon as possible, and it will verify your email address successfully. The next step is to set up security, so select the most suitable option for you. After you have set up the security, you will get a choice to either proceed further with or without completing the KYC procedure. After that, you will be directed to the Funds and Transfer page, where you could start depositing Bitcoins to your wallet. You can also deposit INR and then use it to buy Bitcoin for your WazirX Bitcoin wallet.
What Type Of Currency Is Bitcoin?
Bitcoin is a type of digital currency or cryptocurrency. In January 2009, Bitcoin was established. It's based on Satoshi Nakamoto's ideas, which he laid out in a whitepaper. The name of the individual or people who invented the technology remains unknown.
What Are The Chances Of Bitcoin Crashing?
Two Yale University economists (Yukun Liu and Aleh Tsyvinski) produced research titled "Risks and Returns of Cryptocurrency" in 2018. They looked at the possibility of Bitcoin crashing to zero in a single day. The authors discovered that the chances of an undefined tragedy crashing Bitcoin to zero ranged from 0 percent to 1.3 percent and was around 0.4 percent at the time of publishing, using Bitcoin's history returns to determine its risk-neutral disaster probability. Others claim that because Bitcoin has no intrinsic value, it will inevitably crash to zero. On the other hand, Bitcoin advocates argue that the currency is backed by customer confidence and mathematics.
How Many Bitcoins Are There?
There are 18,730,931.25 Bitcoins in circulation as of June 2021. The total number of Bitcoins that would ever be there is just 21 million. On average, 144 blocks are mined every day, with 6.25 Bitcoins per block. The average number of new Bitcoins mined every day is 900, calculated by multiplying 144 by 6.25.
Is Bitcoin Safe And Legal In India?
In 2020, the Supreme Court of India lifted the RBI’s restrictions on cryptocurrencies. According to the Supreme Court, the existence of Bitcoin or another cryptocurrency is unregulated but not unlawful. The verdict has greatly aided the world of digital money in the country. To put it another way, investing in Bitcoin is perfectly legal, and you may do so through various apps and traders.
Is Bitcoin Mining Free?
Bitcoin mining isn't free, but it can be tried on a budget. Bitcoin mining is an essential part of the blockchain ledger's upkeep and development and the act of issuing new Bitcoins. It is accomplished by the use of cutting-edge computers that tackle complicated computational arithmetic problems. The effort of auditor miners is rewarded. They're in charge of ensuring that Bitcoin transactions go off without a fuss and that they're legal.
How Bitcoin Mining Works?
Bitcoin mining is a crucial element of the blockchain ledger's upkeep and development and the act of bringing new Bitcoins into circulation. It's done with the help of cutting-edge computers that solve exceedingly challenging computational arithmetic problems. Auditor miners are rewarded for their work. They're in charge of ensuring that Bitcoin transactions go through smoothly and legitimately. This standard was established by Satoshi Nakamoto, the founder of Bitcoin, to keep Bitcoin users ethical. By confirming transactions, miners assist in avoiding the "double-spending issue."
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