What Makes Bitcoin So Volatile?

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Traders are still concerned about the volatility of "Bitcoin". It is important to know what makes the value of this digital currency very unstable. Like many other things, the value of 'Bitcoin & # 39; also depends on the rules of supply and demand. If the request for & # 39; Bitcoin & # 39; increases, the price will also increase. On the contrary, the decrease in the demand for "Bitcoin" will lead to a drop in demand. In simple terms, we can say that the price is determined by the amount that the commercial market has agreed to pay. If a large number of people want to buy bitcoins, the price will rise. If more people want to sell Bitcoins, the price will go down.

It is good to know that the value of & quot; Bitcoin & # 39; can be volatile when compared to commodities and more established currencies. This can be attributed to the relatively small size of its market, which means that a smaller amount may have a greater impact on the price of "Bitcoin". This inconsistency will naturally diminish over time as the currency grows and the market grows.

After being teased by the end of 2016, 'Bitcoin & # 39; has reached a new record level the first week of the current year. Several factors could make the "Bitcoin" volatile. Some of them are discussed here.

The bad press factor

The users of & # 39; Bitcoin & # 39; are mainly frightened by various news events, including statements by government officials and geopolitical events according to which the & quot; Bitcoin & # 39; may possibly be regulated. This means that the rate of adoption of "Bitcoins" is disrupted by negative or bad information from the press. Various bad news has created fear among investors and prevented them from investing in this digital currency. The prominent use of "Bitcoin" in the treatment of drug transactions via Silk Road, which ended with the FBI shutting down the Iranian market in October 2013, is an example of bad news. & # 39; value to greatly diminish. On the other hand, veterans of the trade industry have seen in such negative incidents evidence that the "Bitcoin" industry is maturing. Thus, the "Bitcoin" began to gain value, shortly after the effect of the bad press.

Fluctuations in perceived value

Another good reason to make the value of "Bitcoin" volatile is the fluctuation of the perceived value of "Bitcoin". You may know that this digital currency has properties related to gold. This is governed by a design decision of the base technology manufacturers to limit its production to a static amount of 21 million BTC. Because of this factor, investors can allocate fewer or more assets in "Bitcoin".

News about security breaches

Various news agencies and digital media play an important role in building a negative or positive public concept. If you see something that is advertised favorably, you will do it without paying much attention to the negative aspects. There has been news about security loopholes & # 39; Bitcoin & # 39; and this really prompted investors to think twice before investing their hard earned money in trading 'Bitcoin'. They are becoming too likely to choose a specific investment platform "Bitcoin". & # 39; Bitcoin & # 39; can become volatile when the community 'Bitcoin & # 39; Discover security vulnerabilities to create an excellent open source response in the form of security patches. These security concerns are giving rise to several open source software such as Linux. Therefore, it is recommended that developers' Bitcoin & # 39; expose security vulnerabilities to the general public in order to propose solid solutions.

The latest weaknesses – OpenSSL & # 39; attacked by the bug 'Heartbleed' and reported by Neel Mehta (member of Google's security team) on April 1, 2014 appear to have a decreasing effect on the value of "Bitcoin". According to some reports, the value of "Bitcoin" decreased by up to 10% in the ensuing month against the US dollar.

Low option value for holders of large proportions of "Bitcoins"

The volatility of "Bitcoin" also depends on the fact that holders of "Bitcoin" own a significant proportion of this digital currency. It is not clear to "Bitcoin" investors (with holdings greater than $ 10 million) that the way they would settle a position that turns into a fiat position without upsetting the market. So, "Bitcoin" has not hit the adoption rates in the bulk market that would be important to give an option value to the big holders of "Bitcoin".

Effects of Mt Gox

The recent damage to "Mt Gox" is another good reason for the volatility of "Bitcoin". All of these losses and the news of large losses that resulted have had a double effect on instability. You may not be aware that this has reduced the general float of "Bitcoin" & # 39; by almost 5%. This has also created a potential increase in the residual value of & quot; Bitcoin & # 39; because of the increased scarcity. Nevertheless, this negative result was overtaken by the series of information that followed. In particular, many other "Bitcoin" gateways have seen optimism in the big Mt Gox outage for the long-term prospects of "Bitcoin".


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