Since the concept of the bitcoin trading app was introduced, it has been under gauge. Price volatility is one of the primary reasons for rising apprehension in crypto investment.
The recent rise and fall in the value of bitcoin are one of the latest examples highlighting the price volatility. Although the downfall in the value of bitcoin had led to losses, the sudden rise made people earn a great return on investment. Let’s understand this with an example: bitcoin’s value was more than dollar 60,000 in 2022.
It was the time of the pandemic when companies were going under loss, and the stock market was lamenting. But Bitcoin’s value continued to rise. This also made it one of the popular choices of investment. However, the start of 2021 was not so fascinating. That was a downfall in the value of bitcoin, but it has remained stagnant since June 2022.
This brief discussion on the value of cryptocurrency brings forth an important question, if the crypto market is prone to such volatility, what is causing this and whether it is safe to invest in bitcoin or not? Let’s try to, and we’ll find the answers to these questions.
Is volatility existent only in the crypto market?
It is an important question. Although price volatility exists in the stock market and crypto market, the frequency of dynamism is higher in the case of the crypto market as compared to the conventional stock market. It is because of this reason that people or apprehensive about choosing to invest in cryptocurrency. However, if you have a risk-taking appetite and are willing to gain a higher return on investment, cryptocurrencies can prove to be a great asset for you.
Any kind of investment is backed by risk. The same is seen in the case of the crypto market as well. One of the ways to avoid this volatility is to do research and keep a check on the latest development in the crypto market. Understanding how the crypto market is performing and what are the areas that are making the price fall will help you strategize a policy that will be in favor of your investment.
Why Are Bitcoins Volatile? A Look At The Reasons Behind The Price Fluctuations
- The role of demand and supply– The age-old principle of economics also impacts the crypto market. The value of cryptocurrency also fluctuates based on demand and supply. If there is a higher demand for cryptocurrency, but the supply is not the same in that case, the value is bound to shoot up. Conversely, excessive supply leads to a reduction in value. Hence when it comes to making an investment decision, you must consider this aspect.
2. Changing government policies– Government policies also have the potential to impact the value of cryptocurrencies. We have seen it before, and with the introduction of taxation on crypto transactions, the value of cryptocurrency is going to fluctuate again. Countries like Canada, India, and the USA have come up with policies governing the crypto transactions. Although the prime objective of this is to keep the market regulated and ensure safety while transacting in the crypto world, it is bound to impact the value of cryptocurrency.
3. Market sentiment-The next factor that impacts the value of cryptocurrency is market sentiment. For example, presently, the value of bitcoin is plummeting. The announcement by Elon musk on his inclination toward bitcoin and then towards dodge coin romantically impacted its value. Presently the value of bitcoin is pegged at dollar 19,000, but it was in November 2021 that the value of bitcoin rose to $ 60,000 and more. It is important for the investor to first keep a check on the market developments and changes before investing because all these aspects significantly impact the value of cryptocurrency.
While the signs of volatility continue to impact the crypto market but institutional investors in trading funds are showing a positive inclination toward cryptocurrencies. Their entry into the crypto market will give it more stability.
You cannot completely take away the price volatility from the crypto ecosystem, but if you are planning to make a cryptocurrency investment, you must begin with registration on a credible trading platform like a crypto trader official. Same time you must diversify your investment by choosing different cryptocurrencies. This will help you create a buffer that will not impact the value of cryptocurrency.
Alexia is the author at Research Snipers covering all technology news including Google, Apple, Android, Xiaomi, Huawei, Samsung News, and More.