Although Bitcoin has established its name in a span of more than a decade, there are still sceptics out there who consider the digital currency as another bubble that will burst anytime soon. But despite being a highly speculative asset, investors still show their unwavering support for cryptocurrencies. In fact, even large companies like Tesla and JP Morgan have invested a million dollars worth of crypto assets which only adds up to the popularity of Bitcoin and other major alternative coins in the market.
If you are already familiar with cryptocurrency, you must have known that one of the major issues it has is its volatility.
How Volatile Can Bitcoin Get?
Perhaps you are well familiar with the history of Bitcoin and have already heard of the people who have invested in it during its early years. These people have already made a future of fortune. Back in November and April 2011, the price of a single bitcoin was equivalent to $1.
Surprisingly in 2017, the price of Bitcoin skyrocketed from around $17,000 to nearly $20,000. And then at the end of the year, the price went down again and dropped to $14,000. The price volatility has fascinated investors and traders around the globe.
Factors That Affect Bitcoin’s Volatility
- Limited supply and increasing demand
- Increasing numbers of alternative coins in the crypto market
- The cost of acquiring bitcoins through mining.
- Regulations in some countries or regions, concerns and legal requirements.
- The technology is still developing and improving
- The media, headlines and personalities that make significant comments about cryptocurrency
In addition to this, Bitcoin’s supply is only around 21 million. Approximately 18.5 million has already been mined. With only 3 million left, the demand will continue to increase more than the number of holders who are willing to sell their assets. For this reason, its value and price will continue to go up.
Most traders and investors take volatility negatively, which may lead to panic selling. However, for some who have been in the industry for quite a while, there are ways to take advantage of the price fluctuations.
Experts often advise that the best way to deal with volatility is not to deal with it at all. If the prices in the market go down, then it is the best time to purchase more shares. If prices go up, then it is good too. Even if you won’t have any shares, the dollar cost is still the same.
In order to protect yourself from the damages that volatility will cause, diversification is the key. Diversification is one of the best strategies which enables an investor to own a variety of assets and balance them out.
Since cryptocurrencies are not regulated by the government or any central institutions, you will remain a speculative investment.
Investors and traders actually take advantage of volatility through purchase and hold strategies. This technique has to do with acquiring bitcoins for a certain period of time, and when the value goes up, then it’s the perfect time for selling.
Some traders use short-term techniques wherein what they do is predict the price movements of cryptocurrencies in the market and look for opportunities to buy and sell their assets without having to hold them for a long time.
Bitcoin’s volatility is also known to create news and headlines, which drives more enthusiasts and explorers to try out investing in the crypto industry. The increasing number of users is what contributes to greater opportunities and more investment offers. Beginner-friendly trading platforms like Kraken, Bitcoin Profit or Coinbase are popular choices among new or inexperienced traders who wish to experience and join the world of cryptocurrency.
The Bottom Line
Every investment comes with a risk. As with cryptocurrency, one of the major issues that have always been criticised is its high volatility. This is also the reason why cryptocurrencies like Bitcoin are treated as speculative investments.
Volatility may have a negative connotation to many. But some enthusiasts view it as something that may benefit their investments.
The unpredictable movements of prices in the market may cause traders and investors to panic and sell their assets on impulse. For some, volatility may lead to greater income returns and enjoy it rather than dislike it.
Whether volatility is a good or a bad thing is up to you to decide. Just make sure that you should be extra careful and keep in mind the things that you learn in your crypto investment journey. Understanding the market is the key to battling volatility. So before trying out your luck in the crypto industry, be sure to have sufficient knowledge on the risks – and that includes the prices that go up and down.