Cryptocurrencies have become the fancy of investors in the past few years. The unimaginable profit margins that the investors have earned from these cryptocurrencies have inspired millions all across the globe to invest in cryptocurrencies privacy is important. However, one aspect continues to disturb the investors, and that is the volatility of the market.
In December 2020, the trading price of Bitcoin was somewhere around $20,000. Who could have predicted that the same amount would rise to $40,000 by January? And the bull market continued to drag the graph up to $65,000 in April! And then, there was a crash to $30,000 and again surpassed $65,000 in November. Now, these up and down curves have been rewarding and equally unpredictable.
The recent crash again in the crypto market continues through this year. At present, investors from every corner of the globe are concentrating on the probable factor contributing to the volatility of the cryptocurrency market.
Factors That Determine The Market Price of Bitcoins
There are many factors that can directly or indirectly cause fluctuations in the crypto market. The tremendous changes in the price of Bitcoin have already proved that the currencies are much volatile. It’s time to look into the factors that create the volatility of BTC or other cryptos.
Emerging market
You cannot deny the primary fact that cryptocurrency is still an emerging market. Of course, it has gained much popularity, especially since the pandemic, as people have got more time and interest to start investing in the market. But the market is still minuscule if you compare it to the traditional currencies or even gold.
- Although Bitcoin is now considered “digital gold,” the transaction volume is still not as high as the stock market or gold itself. Hence, even a small force like a group of people owning a large number of Bitcoins can crash the market if they start only selling Bitcoins.
- Despite the media attention, the knowledge about the nascent market is not equally available to the mass. People who don’t understand the technical jargon centering on blockchain technology can never understand the concept and hence, won’t take the risk of investing in the BTC for a long time.
When it comes to talking about cryptocurrencies, the investors should note that Bitcoins are not ruled by any governing agency or financial institution.
- Anonymity is acting as a driving force as well as the factor that makes people skeptical about investing.
- Once you notice a fall in the price of the BTC, you will be in a state of panic. As there is no controlling board, you may feel that it’s better to sell off right away before the market crashes to save your investment.
Seldom do you realize that thousands of people thinking the same way are selling off Bitcoins and actually creating the market crash? If you start investing through Bitcoin Era, you will get regular updates and suggestions that will help you understand the market instead of contributing to the volatility.
Limited supply
As every Bitcoininvestor knows Bitcoins have a limited amount of market supply that depends upon the demand. As of now, there are 21 million of Bitcoins available to trade in. But as it has gained maximum popularity in the crypto market, demand and supply forces come into action. In comparison, Litecoin’s supply limit is 84 million, while the limit for Chainlink is 1 billion. Naturally, the volatility of bitcoin will be higher.
The limited holding indicates some entities have major holdings in Bitcoins, influencing the sudden rise and fall in a short time. And this will add to the overall volatility of the entire crypto market.
Frequent changes in regulations
Rumors about possible regulations on bitcoins always affect the short-term price changes. Some companies accept digital assets as an alternative to cash. But as the concept is not universal, there are always debates about possibilities. And that continues the volatile condition of the market.
Final Words
So, these were certain important points that determine the market changes of Bitcoins. In case you are planning to trade in Bitcoins, taking note of these important points will be of helpful use to you.
