When compared to other currencies and commodities, the value of bitcoin is volatile. One of the reasons behind this may be its comparatively small market size. This means a lower sum of money may more prominently shift the price of this cryptocurrency. The volatility is not a permanent situation. It is expected to reduce naturally over time. Volatility will decrease as the market size grows and the currency develops.
In late 2016, financial industry experts had “teased” the currency. Some were of the opinion it would not amount to anything while others believed it would stagnate. After their comments, BTC reached a new record high level. This led to research to determine the cause of volatility in this cryptocurrency. Some of the results are as follows:
Users of the currency are sent into a panic by various news events. The ones with the most impact are geopolitical events and government officials making statements suggesting the regulation of the currency by governmental institutions and other organizations. This means the rate of adoption for BTC is troubled by bad or negative press reports. Different stories of this kind have a negative effect on investors who decide not to invest in the cryptocurrency.
For instance, the suggestion of BTC being used in the processing of drugs and other illegal activities. This will create widespread panic especially if government agencies such as the FBI are involved. In such scenarios, investors are likely to sell their coins to secure their investment as issues are being sorted out. During this rush, the price of the coin will fluctuate drastically costing some investors huge losses. On the other hand, experts in the financial industry have seen its potential. Their reports on the same reaffirmand rebuilds investor confidence. As such, the value of the currency rises as investors start purchasing again.
Fluctuations of the perceived value
The fluctuation of the perceived value of bitcoin is another cause of its volatility. There are bitcoin exchanges such as Bitcoin Trader that may be responsible for this. The currency has properties akin to other commodities like gold. Makers of the core technology are known to restrict production, which is a static amount of 21 BTC. Investors are likely to allocate assets into bitcoin.
News about security breaches
Several digital media and news agencies play a crucial role in building a positive or negative public concept. It is normal for people to go for something that is being advertised as beneficial. When people make such a move, they are likely to overlook the negative side of the story. There has been news of security breaches in bitcoin, resulting ininvestors doubting the currency.
In such a situation, the investoravoidsall trading platforms. The security concerns cause the development of open-source software like Linux. To come up with strong solutions, it is important for developers of BTC to expose any security vulnerabilities to the public. Security breach news will always have a negative effect on the value of bitcoin.