Many factors drive price fluctuations in the spot rate for Bitcoin on crypto exchanges. Traditional markets measure volatility using the volatility index, called the CBOE Volatility Index. Today, the Bitcoin volatility index is available, and it focuses on tracking this world's leading electronic currency's volatility using market cap over specific timeframes.
Historically, Bitcoin has maintained a volatile value. For instance, Bitcoin price volatility hit almost 8% between October 2017 and January 2018. That's over twice Bitcoin volatility within a 30-day period that ended on January 15, 2020. So, why is this electronic currency so volatile?
One of the things affecting Bitcoin's volatility is the adoption rate. And bad news can hurt the adoption rate for this electronic currency. For instance, government statements that they may regulate Bitcoin and geopolitical events can affect its adoption rate. Early adopters might have also included bad actors that produced headlines that caused fear among investors.
Public panic and harmful incidents associated with Bitcoin drove its value versus that of fiat currency down. But Bitcoin-friendly investors considered these events as evidence that the crypto market is maturing and that they will eventually cause this electronic currency's demand to go up.
Perceived Swaying Value of Bitcoin
The perceived value storage of Bitcoin versus fiat money is also a reason why this electronic currency fluctuates. Bitcoin possesses properties that have made people compare it to gold. For instance, a developers' design decision-making for the core technology caps its production to 21 million bitcoins, and this governs it. And this quality makes it markedly different from fiat money that governments manage to maintain high employment, low inflation, and satisfactory growth via capital resources investment. As economies based on fiat money indicate signs of weakness or strengths, Investors determine the amount to allocate into Bitcoin.
Most people use platforms like BitcoinPrime to purchase and sell this electronic currency. Also called crypto exchanges, these platforms make trading or investing in Bitcoin easier even for people with little knowledge of this electronic currency. Today, the internet is awash with cryptocurrency exchanges. Each crypto exchange has unique features for enhancing the security of users and their Bitcoin.
However, hackers have penetrated some crypto exchanges and stolen the money of some users. Other platforms have gone bankrupt, leading to significant losses for their users. What's more, if somebody steals your digital wallet keys or if you lose them, you can't recover your Bitcoin. Additionally, you can't file a claim with any authority if you send Bitcoin to the wrong address. That's because there is no authority regulates cryptocurrencies and their circulation.
Since the media publicizes conversations about the Bitcoin network and security, any breach causes panic among users. And this can increase the volatility of this virtual currency.
Significant Virtual Currency Holder Risks
People holding large outstanding float of Bitcoin also drive its volatility. Currently, Bitcoin investors have above $10 million. However, it's unclear how they can liquidate this significant position into a fiat position without affecting the market severely. It's also unclear how they can liquidate this position in a short period because most crypto exchanges have a 24-hour withdrawal limit below this threshold. What's more, Bitcoin is yet to hit the mass market adoption rate for providing option value to investors with extensive holdings.
Other factors that may explain Bitcoin volatility include its tax treatment lifts, high-inflation countries, and high profile losses that raise fear among users. Nevertheless, Bitcoin will most likely stabilize as its acceptance and adoption increase. More people also continue to use this electronic currency as a payment method. Thus, people could eventually start using Bitcoin as fiat money. How this will work out is a matter of time.