Causes of the Bitcoin Plunges
Bitcoin is the largest and most popular cryptocurrency. It and other cryptocurrencies have plummeted in value in the past few months. Some experts argue that the price of bitcoin can either fall to $30,000 or rise to $100,000. However, recently we have seen a negative scenario. What is the reason for such a sharp fall of the most popular cryptocurrency? To understand this, it is worthwhile to clarify the concepts of value and volatility.
Value and Volatility
Volatility is the fluctuation of the cryptocurrency rate over a certain period. Increased volatility characterizes the cryptocurrency market. The price dynamics can also vary up to 100%.
Bitcoin’s volatility is also the price that investors pay for its limited supply. Volatility is also a lack of a central bank to control bitcoin. These are the key features that give it value. For classic financial instruments, such changes are colossal, but for the crypto market, this is a common thing. Bitcoin volatility has to do with a lot of things.
Why Bitcoin Has a Volatile Value
Many cryptocurrency market participants are afraid to invest in bitcoin because they don’t know what to expect from it. This is why the quotes of crypto-asset are so volatile.
We can identify the key factors of cryptocurrency volatility:
1) Lack of government regulation
The currency of any country gets support from the state. Cryptocurrencies are decentralized. There is no central authority that has the power to intervene in the bitcoin market. Therefore, the cryptocurrency rate fluctuates depending on supply and demand.
2) Bad news hurts bitcoin value
News events that scare Bitcoin users include statements by governments about bitcoin regulation and geopolitical events.
For example, El Salvador’s statement that Bitcoin became a legal tender on June 9, 2021. It is the first country to do so. They can now use cryptocurrency for any transaction where the business can accept it. Such news significantly influenced the bitcoin rate and the value of bitcoins versus fiat currencies down rapidly.
3) Cryptocurrencies have no real value
Part of what makes bitcoin valuable is the fact that it is scarce and has no real value. There are no ways to estimate the real value of cryptocurrencies. Its maximum threshold is 21 million.
4) Human factor
Bitcoin is a popular cryptocurrency. Such popularity has caused a stir among novice investors and traders in recent years. Beginners often make mistakes by buying and selling assets at the most inopportune moments, and influence the rate variations.
5) Uncertainty of Future Bitcoin’s Value
Varying perceptions of the cryptocurrency value also driven bitcoin volatility as a method of value transfer and its store. Bitcoin’s value is also determined by whether it will be useful in the future. Investors understand that bitcoin can be saved and exchanged for some service or good in the future.
6) Market manipulation of the crypto coin
Holders of tokens of unpopular crypto coins can easily cause a collapse in the value of bitcoin by putting up for sale most of their crypto assets.
What’s going on now with BTC
Bitcoin is a cryptocurrency but does not work as a currency because of its excessive volatility. It will be an exorbitantly expensive currency as a medium of exchange and unit of account. But considering buying Bitcoin as a long-term store of value, volatility can generate significant returns.
Many analysts predict that by the end of 2021 the number of cryptocurrency owners will double, and the bitcoin rate will stabilize at $30,000. It is unlikely that there will be any strong jerks up or down relative to the rate of the most popular cryptocurrency. Most new investors do not understand the risks of investing in bitcoin and other cryptocurrencies. Therefore, everything will depend on whether new market participants are ready to buy bitcoin for $30,000 or more. Bitcoin could develop as a store of value and an alternative to another store of value such as gold.
There is only one conclusion. Bitcoin is the least volatile cryptocurrency. This cryptocurrency has large trading volumes and high liquidity. Influencing the value of Bitcoin is much more difficult than influencing the price of altcoins. Until the flow of new bitcoin investors dries up, the cryptocurrency market will continue to grow regardless of the growth of bitcoin volatility.