What makes Bitcoin so volatile?

Traders are always concerned about the volatility of bitcoin. It is important to know what makes the value of this particular digital currency highly volatile. Like many things, the value of bitcoin also depends on the search and bid rules. If demand for bitcoin increases, then the price will increase as well. On the contrary, a decrease in the demand for bitcoin will lead to a lower demand. In simple words, we can say that the price is determined by the amount agreed to pay the trading market. If a large number of people want to buy bitcoin, the price will go up. If more people want to sell bitcoin, the price will go down.

It is worth knowing that the value of Bitcoin can be variable when compared to more established commodities and currencies. This may be due to its relatively small market size, which means that a smaller amount of money can shift the price of Bitcoin more clearly. This discrepancy will naturally decrease over time as the currency develops and the size of the market grows.

After being sworn in at the end of 2016, & # 39; Bitcoin & # 39; touched a new record high in the first week of this year. There may be several factors that can cause bitcoin volatility. Some of them are discussed here.

Bad press factor

Bitcoin users are mostly scared of various news events, including statements by government officials and geopolitical events that Bitcoin can be regulated. This means that bitcoin's reception speed is hampered by negative or bad press releases. The various bad news creates fear for investors and forbids them to invest in this digital currency. An example of bad news headlines is the famous use of bitcoin in the processing of drug transactions through Silk Road, which ended with an FBI market shutdown in October 2013. These kinds of stories caused panic among people and triggered "Bitcoin" & # 39 ; value to decrease significantly. On the other hand, veterans in the trade industry have seen such negative incidents as proof that the Bitcoin industry is maturing. Thus, Bitcoin began to gain in value shortly after the bad press effect disappeared.

Perceptual value fluctuations

Another big reason why the value of Bitcoin becomes variable is the fluctuation in the perceived value of Bitcoin. You may know that this digital currency has properties close to gold. This is determined by the design decision of the basic technology manufacturers to limit their production to a static amount of BTC 21 million. Due to this factor, investors can distribute more or less assets in Bitcoin.

Security breach news

Various news agencies and digital media play an important role in building a negative or positive social concept. If you see something advertised favorably, you are likely to go for it without paying much attention to the downsides. There is news of Bitcoin security breaches, and this has really made investors think twice before investing their hard-earned money in trading Bitcoin. They become too susceptible to choosing a specific investment platform for Bitcoin. & # 39; Bitcoin & # 39; can become volatile when the community of & # 39; Bitcoin & # 39; uncover security sensitivity in an attempt to create a great open source response in the form of security fixes. Similar security issues give birth to several open source software such as Linux. It is therefore advisable for Bitcoin developers to expose security vulnerabilities to the general public in order to make strong decisions.

OpenSSL's recent weaknesses, attacked by a Heartbleed error and reported by Neil Mehta (a member of Google's security team) on April 1, 2014, seem to have some downward effect on the value of Bitcoin. According to some reports, the value of bitcoin dropped to 10% next month compared to the US dollar.

Low value option for holders of large Bitcoin Proportions

Bitcoin instability also depends on Bitcoin holders who have large proportions of this digital currency. It is unclear for Bitcoin investors (with current holdings of more than $ 10 million) how they will settle a position that is growing in a fiat position without moving strongly in the market. So Bitcoin has not touched on the mass market acceptance rate, which would be important to give value to the option of large Bitcoin holders.

Effects of Mt Gox

The recent damage to Mt Gox is another big reason for the volatility of Bitcoin. All these losses and the ensuing big loss news had a double effect on instability. You may not know that this reduced Bitcoin's total flow by almost 5%. This also created a potential increase in the residual value of Bitcoin due to the increased deficit. Nevertheless, the displacement of this lift was the negative result of the news that followed. In particular, many other Bitcoin gateways see the great failure of Mt Gox as optimistic about Bitcoin's long-term prospects.