Topic: Volatility - major reasons for ?! - page 4. (Read 2174 times)

This is the reason for the volatility. Since bitcoins are not backed up by anything, unlike in fiat currency where it is backed by gold and/or the government that issued the currency, this results to bitcoins being valued by the users themselves. That is why we see a whole lot of volatility here. Maybe in the future when there are more people using it then we could see some stability.

Bitcoin is a decentralized currency which has no authority to control its price.Its value is driven by the support from the community.Its price increases or decreases directly in proportion to increase or decrease in demand for bitcoin.There is no variation in supply since it has been already set as 21 million coins for supply.Greater the demand,more increase in price and smaller the demand,lower the price.In this way,we could say that bitcoin expresses its true value.

Bitcoin for sure has been one of the most volatile currency (if we have to compared it to the fiat money) and had it been a national currency of a certain country then it might pose some big problems though of course there would be many holders who can be ecstatic seeing their money jumping in value in a very short time.

One of the many factors for Bitcoin (and this can also be true with other commodities traded in an open market) is the ever increasing demand and the limited supply. Had it been possible to just "print" or create Bitcoin by command then we can easily lessen the volatility as what many central banks are doing to prop their own sagging economies.

Now, may be the next question is this: Is volatility helping or hurting Bitcoin?

Since bitcoin is a global market, it is exposed to all kind of frictions, different countries having different reasons to buy or dump it and so on. The marketcap is too small to not fluctuate a lot, which is good because it shows there's a ton of upwards potential. Once the marketcap is worth 7+ trillion like gold, the price will be way less volatile.

You have to remember that Bitcoin are not widely accepted yet. You have a bunch of whales manipulating the price and you have a bunch of small

events causing the spikes and the dumps. Some of the biggest events was hacks like MtGox and scandals like Silkroad. In between all of that, you

have slow mainstream adoption of the technology on a global scale. 

I cannot really comment on 1, or even 2... but I do know a few of those currencies, and not sure they can even out to Bitcoin's 10,000% or more growth from 2009 to 2017. Very loose connection.

But on 3, a single world exchange isn't possible... even today for forex you don't have ONE exchange but many. Each country also mostly trades on its own basket.

For all bigger currencies there is a huge 'efficient' FX market / huge volume trading in place - that keeps the vola in a narrow range.

And yes - economy is also a fact there and mostly corridored to +2% p.a. - vola is low due to that as well...

I think the only reason for that is because Bitcoin does not have a real economy yet. It is just used for trading purpose, unline other traditional currencies which are used to buy and sell stuff

I think one of the reasons is that Bitcoin is not tied to any real activity, for example, the currency exchange rate depends on the trade in goods and many other factors. Bitcoin depends much on the mood of the crowd.

Bitcoin supply and demand will rate the volatility of the bitcoin value. As adoption rate increases price will move forward and if there is any market fall happens then bitcoin related business or project that time will see the dump in price.

I just try to find the major reasons for the very high volatility of bitcoins price we all encountered over the last years.

1) Exponential Growth ( in trust and usage)

It's clear this is a very strong reason to cause price volatility, since we have double and double of requesters that all needs to get coins from a scarce bitcoin supply.
So we see price squeezes all over the time (more up than down). Further we have no or lost experience with such exponential growth process esp in money (last adoption was gold some 1000 years before)


2) Evaluation Base CCY ?
I have the strong suspicion that bitcoins volatility is positive correlated to the volatility of the lowest trusted fiat currencies' volatility in the world.
Sadly I cannot proof this by averaging the historical volatilities of a 'poor's currency basket' of (Zimbabwe$, Venezuela$, Egypt pound, Jemen slotty, Syria Dinar,..xyz...) but I estimate, that we have same volatility there as in bitcoin. And all people living in those countries should be way better off with bitcoin and it's vola!
We just see and measure BTC/USD - volatility is high, but we forget where it's based on - on the poor ccys all together - but they are dominant here.

3) Heterogeneous / Fragmented Markets
We now have some 100 different exchanges and local places where you can exchange you bitcoin against any other fiat or crypto. There is no condensed order book / matching for a trade and limited arbitrage due to capital protection of some states.
I'd guess we'd see a fraction of the actual volatility, if we would have a (ideal) single world exchange, where all must trade BTC/USD (USD is just a default example for a world fiat and rest crypto ccy) .


Any other reasons you could see?