Topic: Why Bitcoin Is So Volatile - page 3. (Read 1265 times)
Bitcoin is so volatile because it has not reach its real value yet and at the same time its demand is increasing on a daily basis because it is a new form of currency that is yet to be accepted world over.
For me, bitcoin is so volatile because of the market. We all know that bitcoin doesn’t have a constant amount even at the beginning. When bitcoin’s demand increase the amount of it also increase and when the bitcoin’s demand decrease the price of it too decrease. It happens because, for some reason like the issue of bitcoin, some influential person speak about bitcoin and acceptance of some company this is the typical things why bitcoin’s amount is fluctuating too much. 
Thank you for this article.
So Why Is Bitcoin's Value So Volatile?
- By Jonathan Todd Barker
Price fluctuations in the Bitcoin spot rate on the Bitcoin exchanges is driven by many factors. Volatility is measured in traditional markets by the Volatility Index, also known as the CBOE Volatility Index (VIX). Volatility in Bitcoin does not yet have a generally accepted index since cryptocurrency as an asset class is still in its nascent stages, but we do know that Bitcoin is capable of volatility in the form of 10x changes in price versus the U.S. dollar, in a relatively short period of time (See the Investopedia Bitcoin Center for current updates on the price of bitcoin).
Here are just a few of the many factors behind Bitcoin's volatility:
1. Rate of adoption is hampered by bad press
News events that scare Bitcoin users include geopolitical events and statements by governments that Bitcoin is likely to be regulated. Bitcoin's early adopters included several mal actors, producing headline news stories that produced fear in investors. Headline-making Bitcoin news includes the bankruptcy of Mt. Gox in early 2014 and more recently that of the South Korean exchange Yapian Youbit, and others like the high-profile use of Bitcoin in drug transactions via Silk Road that ended with the FBI shutdown of the marketplace in October 2013. All these incidents and the public panic that ensued drove the value of Bitcoins versus fiat currencies down rapidly. However, Bitcoin-friendly investors viewed those events as evidence that the market was maturing, driving the value of Bitcoins versus the dollar markedly back up in the short period immediately following the news events.
2. Bitcoin's perceived value fluctuates
One reason why Bitcoin may fluctuate against fiat currencies is the perceived store of value versus the fiat currency. Bitcoin has properties that make it similar to gold. It is governed by a design decision by the developers of the core technology to limit its production to a fixed amount, 21 million BTC. Since that differs markedly from fiat currency, which is managed by governments who want to maintain low inflation, high employment, and satisfactory growth through investment in capital resources, as economies built with fiat currencies show signs of strength or weakness, investors may allocate more or less of their assets into Bitcoin.
3. Too much variance in perceptions of Bitcoin's store of value and method of value
Bitcoin volatility is also driven in large part by varying perceptions of the intrinsic value of the cryptocurrency as a store of value and method of value transfer. A store of value is the function by which an asset can be useful in the future with some predictability. A store of value can be saved and exchanged for some good or service in the future. A method of value transfer is any object or concept used to transmit property in the form of assets from one party to another. Bitcoin’s volatility at the present makes it a somewhat unclear store of value, but it promises nearly frictionless value transfer. Since these two drivers of the current spot price of Bitcoin vary against the dollar and other fiat currencies, we see that Bitcoin's value can swing based on news events much as we observe with fiat currencies.
4. Little option value to large holders of the currency
Bitcoin volatility is also to an extent driven by holders of large proportions of the total outstanding float of the currency. For Bitcoin investors with current holdings above around $10M, it is not clear how they would liquidate a position that large into a fiat position without severely moving the market. Since Bitcoin’s volume resembles a small cap stock, the currency has not hit the mass market adoption rates that would be necessary to provide option value to large holders of the currency.
5. News about security breaches make investors react
Bitcoin can also become volatile when the Bitcoin community exposes security vulnerabilities in an effort to produce massive open source responses in the form of security fixes. This approach to security is paradoxically one that produces great outcomes, with many valuable open source software initiatives to its credit, including Linux. Bitcoin developers must reveal security concerns to the public in order to produce robust solutions. It was a hack that drove the Yapian Youbit to bankruptcy, while NiceHash too reported $70 million worth of Bitcoin stolen in a recent attack on the platform. In April 2014, the OpenSSL vulnerabilities attacked by the Heartbleed bug and reported by Google security's Neel Mehta drove Bitcoin prices down by 10% in a month. Bitcoin and open source software development are built upon the same fundamental premise that a copy of the source code is free for users to examine and modify at will. This concept makes it the responsibility of the community to voice concerns about the software design, and when the community does so, the value of Bitcoin reflects the level of confidence in the protocol design as a whole. It is only natural then that the value would fluctuate with news events about security breaches.
6. Bitcoin’s high profile losses at are another driver of volatility
It is worth noting that these losses and the ensuing news about the losses had a double effect on volatility. They reduced the overall float of Bitcoin by approximately, producing a potential lift on the value of the remaining Bitcoin due to increased scarcity. However, overriding this lift was negative effect of the news cycle that followed. Notably, other Bitcoin gateways looked to the massive failure at Mt Gox as a positive for the long term prospects of Bitcoin, further complicating the already complex story behind the currency’s volatility. As early adopting firms are eliminated from the market due to poor management and dysfunctional processes, later entrants learn from their errors and build stronger processes into their own operations, strengthening the infrastructure of the currency overall.
7.Bitcoin and foreign direct investment in countries with high inflation
Bitcoin’s use case as a currency for the developing countries that are currently experiencing high inflation is valuable when considering the volatility of Bitcoin in these economies versus the volatility of Bitcoin in US$. Bitcoin is much more volatile versus the USD than the high inflation Argentine peso versus the US$. That being said, the near frictionless transfer of Bitcoins across borders makes it a potentially highly attractive borrowing instrument for Argentineans, as the high inflation rate for peso denominated loans potentially justifies taking on some intermediate currency volatility risk in a Bitcoin denominated loan funded outside Argentina. Similarly, funders outside Argentina can earn a higher return under this scheme than they can using debt instruments denominated in their home currency, potentially offsetting some of the risk of exposure to the high inflation Argentine market.
8. Tax treatment of Bitcoin also affects the volatility
Recent announcements by the IRS stating that the currency is actually an asset for tax purposes had mixed effects on volatility. On the upside, any statement recognizing the currency has a positive effect on the market valuation of the currency. Conversely, on the downside, the decision by the IRS to call it property had two negative effects. The first was the added complexity for users who want to pay with it. Under the new tax law, users would have to record the market value of the currency at the time of every transaction, no matter how small. This can understandably slow adoption as it seems to be too much trouble for what it is worth for many users. Secondly, the decision to call the currency a form of property for tax purposes may be a signal to some market participants that the IRS is preparing to enforce stronger regulations later. Very strong regulation of the currency could cause the adoption rate of the currency to slow to the point where it is not able to achieve the mass adoption that is critical for its overall utility in society. Recent moves by the IRS are not clear as to their signaling motives and therefore have mixed signals to the market for Bitcoin.
The Bottom Line
Bitcoin presents a variety of opportunities that did not exist prior to its development. Yet, it has failed as yet to convert investors concerned about its potential rate of adoption as an alternative currency. Recent acknowledgement by the IRS that Bitcoin is an asset for tax purposes has clarified the situation for investors, and the promise of frictionless value transfer suggests innovative use cases in foreign direct investment. In the near term, much of the volatility will be driven by investor perception of the ability of gateways to safeguard individual holdings and provide for a reliable store of value as adoption increases.
The article is not worth reading at all because it rolls out the same old thing time and again because it started with the thing that btc is overvalued and has no value of its own as it is not backed up by any assest.The volatility can't be avoided in this case as liquidity in the market is too low and the prices are not stable.The more people when will know about bitcoin the more the prices will become stable with time. Unless we cant avoid this volatility.
I have always been asking myself the same question on why Bitcoin is so volatile. I compared it to Ethereum which is the second best Cryptocurrency and Bitcoin Cash. I came to notice something, and that is, despite Ethereum being steps ahead of Bitcoin Cash in the market and having a huge market cap, Bitcoin Cash was still more volatile than it. I just concluded that the reason Bitcoin itself was very volatile is because there are lots of demand for it and the supply rate is low. But after reading this article, I’m a little bit confused.
The low supply of bitcoin makes bitcoin very volatile, after all when governments begin to see that the currency begin to revaluate and becomes too valuable they can just print more of it and it is something that is impossible to do with bitcoin and with must cryptocurrencies, that is one of the advantages of fiat but that advantage is also disadvantage since the governments can print as much currency as they want. I have always been asking myself the same question on why Bitcoin is so volatile. I compared it to Ethereum which is the second best Cryptocurrency and Bitcoin Cash. I came to notice something, and that is, despite Ethereum being steps ahead of Bitcoin Cash in the market and having a huge market cap, Bitcoin Cash was still more volatile than it. I just concluded that the reason Bitcoin itself was very volatile is because there are lots of demand for it and the supply rate is low. But after reading this article, I’m a little bit confused.
Perfect, it is about fluctuations that made it easy for us to invest in this business and earn profit for ourselves. These are the arguments of the past and now everything is changed. Its volatility helps us to buy and after jumping the price due to demand increases make profit when we sell. Invest when its value is low and do not invest when its value is high would be in your benefit. Actually we already experienced it no need to mention but yes sad to say it is now in the dump situation where all of us are already lose pur profit 
There is another side of coin as well. We have to be sharp minded when things are going against our plans. Once the prices are going down, and if you have luckily invested in Bitcoins already, you got best chance to buy more. You need to be profit oriented and for that you must be vigilant and wise enough to see your hidden profits. Rest, leave everything on the luck and skill. 
This is an old stuff, I have read a hundred times and sick of reading it over and over again. Every author just keeps saying whatever nonsense it is that comes to their mind just to gain whatever it is they plan for. Yes we know that Bitcoin is volatile because of people invest a lot of money and withdraws when they have made huge profits. Well, it’s a normal thing in this business and can also be found in most business out there.
Bitcoin is volatile, and being volatile is what helps most of us make profit. Those who are quick and smart will always invest at the right and also withdraw when it’s right to avoid losing their money. There are always people manipulating the price. It’s left for you to play the game smart, if you can.
Bitcoin is volatile, and being volatile is what helps most of us make profit. Those who are quick and smart will always invest at the right and also withdraw when it’s right to avoid losing their money. There are always people manipulating the price. It’s left for you to play the game smart, if you can.
I think no one knows exactly how to evaluate bitcoin. In addition, a certain number of people manipulate its price. It's not fair to the rest of us.
I don't buy that argument that Bitcoin is volatile because it has no intrinsic value to be backed upon. Nothing is backed by anything substantive! Fiat is backed by the monopoly power of the state, gold is backed by the social capital given to it. If Bitcoin's lack of physical asset backing was a problem, all currencies would be volatile.
Bitcoins volatility is not new in financial history. Earlier forms of currency like tobacco used in the early American colonies were much more volatile. Bitcoin's instability is just a demonstration of the market. Hype led to speculators buying up the supply, and scares by regulators and panic sellers caused price drops.
There is nothing intrinsic in Bitcoin, besides maybe slow and expensive transactions coming to the fore, that makes it volatile. It is a commodity, and like any commodity, is a slave to market forces - let it be euphoria or panic.
Bitcoins volatility is not new in financial history. Earlier forms of currency like tobacco used in the early American colonies were much more volatile. Bitcoin's instability is just a demonstration of the market. Hype led to speculators buying up the supply, and scares by regulators and panic sellers caused price drops.
There is nothing intrinsic in Bitcoin, besides maybe slow and expensive transactions coming to the fore, that makes it volatile. It is a commodity, and like any commodity, is a slave to market forces - let it be euphoria or panic.
I would disagree. Digital currency and earlier form of currency like tobacco has huge difference from now and then. The argument is about "why Bitcoin is volatile?" so we already assumed that it is volatile. First, volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. Well since that cryptocurrencies are decentralized, every coin would just be flying around the blockchain. And because no one is responsible for the sudden changes in its price, there is a very high chance of having a dramatic increase or decrease of prices overtime, without any relation to other factors such as season.
You're right, all currencies are volatile, but the type of volatility that other currency have like fiats - they have low volatility meaning their value changes very slowly and the growth is somewhat steady. Unlike cryptocurrency they're high volatility.
The volatility of bitcoin is due to its less availability of only 21 million when compared to the fiat money of US dollar,its availability is four trillion.So the difference is very big between the crypto and fiat,so there is a little change in the demand and supply will change the price which resulted in the often price change.
But the price volatility is the main reason that people don't use it as a currency and merchants afraid to accept as a payment because the merchants will lose their profits when the price falls.So we need to support altcoins too to get the stability in price of bitcoin.
But the price volatility is the main reason that people don't use it as a currency and merchants afraid to accept as a payment because the merchants will lose their profits when the price falls.So we need to support altcoins too to get the stability in price of bitcoin.
yes I agree with you the cause of bitcoin volatility is its limited amount. the volume of bitcoin present on the market today is about 16.7 million coins this is much different from the amount of US dollars in circulation. because of the bitcoin bit circulation volume then when someone buys or sells bitcoin in a large price then the price will move extremities. and bitcoin volatility is also affected by demand and supply.
I think bitcoin is so volatile because of the fact that there are many factors contributing to it, such as demand from the people the other cryptocurrencies that it beats. The more there are competitors for bitcoin, the more it’s value rises. In an economics class there are theories for this scenarios, although I have forgotten the exact term for it.
I think bitcoin is so volatile because of the fact that there are many factors contributing to it, such as demand from the people the other cryptocurrencies that it beats. The more there are competitors for bitcoin, the more it’s value rises. In an economics class there are theories for this scenarios, although I have forgotten the exact term for it.
There are a lot of factors that would make bitcoin volatile. Few are as follows:
1. Rate of adoption is hampered by bad press
2. Bitcoin's perceived value fluctuates
3. Too much variance in perceptions of Bitcoin's store of value and method of value
4. Little option value to large holders of the currency
5. News about security breaches make investors react
6. Bitcoin’s high profile losses at are another driver of volatility
7.Bitcoin and foreign direct investment in countries with high inflation
8. Tax treatment of Bitcoin also affects the volatility
In the near time, much of the volatility will be driven by investors perception of the ability of gateways to safeguard individual holdings and provide for a reliable store of value as adoption increases.
I think bitcoin is so volatile because of the fact that there are many factors contributing to it, such as demand from the people the other cryptocurrencies that it beats. The more there are competitors for bitcoin, the more it’s value rises. In an economics class there are theories for this scenarios, although I have forgotten the exact term for it.
Not only Btc but also the other crypto and shares are volatile.Because it's structure is like that.None in the market corporate world can be made fixed.These are influenced by different variables,so it's price is always variable.Sometimes rising, sometimes falling the price.Demand and supply are very important in this case but in additional to the international market, economic recession, consumer purchasing power, intereste and speculative impacts work much more.
If you are there in the world of crypto currencies and that you understand all the things related to any of the crypto currency and the way they work, then I think so you will have no problem in understanding this volatile nature of any of the crypto currency, this volatile nature of bitcoin is just because of the reason that its market value is very much dependent on the demand and supply rate.
The advantage and disadvantage that I am seeing here why bitcoin is so volatile is because it is decentralized, no one owns and handling it, no one will care how much you are going to invest and how much, as well as in withdrawing your investment there is no limit nor maximum in withdrawing your funds.
I am not expecting Bitcoin to remain stable more than a month anywhere in next 5 to 10 years. At this point, not even 10% of the world's population is using Bitcoin so considering the small sustainable growth, the user base and indirectly the price will keep increasing. On the other hand if something goes wrong in the core area then price and user base will fall down and we won't have the stability at any given point.
Because bitcoin presents various opportunities that did not exist prior to its development. But it has failed to turn investors who are concerned about the extent of its potential adoption as an alternative currency.
Clueless article. I wonder if they intentionally mislead the public as to how financial markets work.
The stock market doesn't have a baseline. The stock market has regulators with the tools to control it, to a certain degree. The FED, government and banks have the power to keep the prices of assets above a certain threshold especially in times of crisis. This often happens at a great cost. But that's what keeps the markets stable for most of the time.
Bitcoin is volatile because it is unregulated and not controlled by any specific institution. That's also why price manipulation is as rampant as it is for BTC.
The stock market doesn't have a baseline. The stock market has regulators with the tools to control it, to a certain degree. The FED, government and banks have the power to keep the prices of assets above a certain threshold especially in times of crisis. This often happens at a great cost. But that's what keeps the markets stable for most of the time.
Bitcoin is volatile because it is unregulated and not controlled by any specific institution. That's also why price manipulation is as rampant as it is for BTC.
Yeah, it is the volatility nature of Bitcoin that made it rise massively to $23K some few months ago. This is a good property of Bitcoin as it makes the market demand goes up and create more market niche for the crypto world. Let's appreciate the good side of the volatility nature for once.
It is very simple to explain.Bitcoin's price depends on the forces of demand and supply.If the demand is high then the prices will definitely rise.On the other hand if the supply is more then prices will fall down.Prices also depend on how much people invest in bitcoin.If more people invest in it then for sure its price will rise or otheriwse vice versa will happen if investment is less.Another reason is if people hold or release their bitcoins in the market.Bitcoin has a very huge market too compared to any other cryptocurrency. Jump to: