It is no news that the value of bitcoin, and cryptocurrencies in general, is highly unpredictable and unstable. As a matter of fact, volatility is one of bitcoin’s core features.
Why does bitcoin exist in this nature? How can bitcoin users get the most out of its volatility?
This article gives insight into these questions. Keep reading to find out!
Bitcoin: Why Volatile?
Bitcoin (BTC), the first of its kind, is a digital currency that runs on a highly decentralized network.
What does this mean? Bitcoin is not controlled or influenced by any human or organization.
How does it affect the value of the currency? The value of bitcoin is mainly determined by the actions of its investors. This means that whenever an increased number of users buy bitcoin, the value increases but when so many investors sell their bitcoins, the value drops.
Why do cryptocurrencies rise and fall? With volatility being the most significant reason, there are a number of factors that contribute to the sharp rise and fall in the value of cryptocurrencies.
These factors also affect bitcoin and they will be discussed in later paragraphs. For now, let us understand the terms, pump and crash.
Pump and Crash
As with some other cryptocurrencies, the pump in Bitcoin occurs when so many users buy bitcoin in the same period. This leads to a high demand in the digital currency which, in turn, increases its monetary value.
The value of bitcoin is said to crash when a huge number of bitcoin users sell their assets, leading to a decline in its monetary value.
In simpler terms, the price of bitcoin comes up when it pumps. On the other hand, the price of bitcoin goes down when there is a crash.
Pump = Rise
While Crash = Fall
Why Does Bitcoin Rise and Fall?
As mentioned earlier, some factors contribute to bitcoin’s volatility. Some of them include:
- The Impact of the Media
The media has a huge effect on the price of bitcoin. Many bitcoin users obtain information about the cryptocurrency space from the media. They rely on top crypto news to influence their decisions to either invest more or sell their assets to make money.
For example, when news about a rise in the value of bitcoin is projected by the media, more attention is placed on the currency. This, as well, fuels the interest of people to join the train of investors. As a result, the value of bitcoin increases even more.
- Fear and Panic
Bitcoin is not backed by any asset or commodity. As a result, some users may worry about the safety of their investments. When fear sets in, these users may begin to sell their assets. This action can lead to a fall in the value of bitcoin and even influence other investors to sell as well.
The more users sell bitcoin, the more the value drops. This drastic fall in price may take place within 24 hours.
Making the Best Use of Bitcoin’s Volatility
Bitcoin’s volatility could prove to be a blessing in disguise if users carefully study the pattern. This prominent feature is here to stay, but it is very possible to get the best out of it.
Users can get the most out of Bitcoin’s volatility by selling their assets when the value is high and buying when the value crashes. This action is important in order to prevent making avoidable losses and earn profit in the cryptocurrency space.
As we have learned in this article, bitcoin is a highly volatile digital asset. This is evident because its value has risen and fallen over the years.
Investors can enjoy bitcoin’s volatility by buying when the value is low and selling when the value is high.