Approximately 14.85 lakh bitcoins were traded in December 2020. According to the latest figures, the company crossed $40,000 earlier this year. By April, it had risen to $65,000. During May, it crashed and remained below $30,000 through June. Last week, the coin surpassed $45,000 against the dollar for the first time in almost three months. Similar behavior has been observed in most other popular cryptocurrencies. The high volatility in the cryptocurrency market may have resulted in some windfall.
One of the most troubling questions for most investors is: Why is cryptocurrency so volatile? Volatility has been present since the beginning. In the last few months, the cryptocurrency market has been particularly volatile.
In this market, there are a few factors that determine its trajectory. They are listed below by Yuan pay group.
Markets in development
The cryptocurrency market continues to gain popularity while also disenchanting investors. It is still a relatively new market. Although conventional currencies and gold are not a big deal compared to bitcoin, this market has gained media attention. It means even smaller forces can influence the trade – like a group of people holding large amounts of cryptocurrency. Even if they just sold bitcoins, the market would crash.
Speculation fuels the cryptocurrency market. Investors bet on whether the price will go up or down to make a profit. High volatility results from these speculative bets, as they cause a sudden influx of money .
Most cryptocurrencies, including Bitcoin and Ether, are virtual assets with no backing in physical assets. Therefore, according to supply and demand, their prices are purely determined by those two factors. When there is no government backing or another stabilizing factor, the pool or demand can fluctuate for any number of reasons.
Technologies in development
Ten years have passed since Bitcoin first appeared on the scene. There is still much progress in the blockchain or other technologies used to operate these coins. When smart contracts aren’t ok with in the timeframe , there is a problem of scalability.
Investors with risk aversion
There is no need for expertise in this market, unlike the real estate or stock markets. Most of the investors are part-timers. Sometimes they lose patience when the expected gains do not happen and withdraw from the venture. These frequent involvements and withdrawals also cause volatility.
Value of Bitcoin in the Future is Uncertain
Variations in perceptions of Bitcoin’s intrinsic value as a store of value and as a mechanism to transfer value also significantly influence its volatility. When an asset can be predictably used in the future, we can consider it a store of value. We can save Discounts for future goods and services.
An asset transfer method is any method of passing along property from one party to another in the form of assets. Although Bitcoin is volatile at present, it promises almost frictionless value transfers. So, in consequence, digital yuan observe that the value of bitcoin can fluctuate in response to recent events, just as fiat currencies do.
Risks associated with large currency holders
Investors with bitcoin positions exceeding $10 million are uncertain of how to convert such a prominent position into fiat without affecting the market drastically. The answer may not be apparent, given that most cryptocurrency exchanges impose withdrawal limits far below that threshold in 24 hours.
To give large holders of the Bitcoin option value, Bitcoin has not reached mass market adoption rates that would be necessary.
Security breaches cause volatility
Bitcoin can also become volatile when the bitcoin community exposes security vulnerabilities to produce a massive open-source response. As a result of this approach, numerous open-source software initiatives, such as Linux, have been successful. To build robust solutions, bitcoin developers need to reveal security concerns.
An early example of this was the 10% drop in Bitcoin prices in a month that occurred in April 2014 after Google securities.
A high-profile loss raises fears
By reducing the overall float of bitcoin, they increased scarcity, thereby potentially boosting the value of the remaining bitcoins. However, the adverse effects of the following news cycle overrode this rise.
Furthermore, other bitcoin exchanges saw Mt. Gox’s collapse as a positive, harmonizing the currency’s volatility with the failure of a massive trade.
Bitcoins and countries with high inflation
Considering the volatility of bitcoin in economies experiencing high inflation compared to the volatility of bitcoin in USD, bitcoin’s use case as a currency for developing countries is valuable. The volatility of Bitcoin versus USD has been much higher than that of the high-inflation Argentine peso.
Although bitcoins are near-frictionless across borders, their high inflation rate justifies taking on some intermediate currency risk in Argentine loans funded outside Argentina due to the high inflation rate for peso-denominated loans.
Investors are likely less exposed to high inflation risk in Argentina .
An increase in taxation reduces volatility
Moreover adverse, any statement that recognizes the currency positively affects its market value.
On the other hand, claiming its adverse property was an unfavorable decision by the IRS. As a form of payment, it adds complexity for users. Many users find that keeping records is too much work for what it is worth, which causes adoption to lag.