Do you wonder why bitcoin prices fluctuate so much? This has a lot to do with the cryptocurrency’s uncertainty as a viable form of value. You can also bring in the question of how the crypto is being used, including the unethical practices by bitcoin exchanges. That gives you a good recipe for the wild swings in bitcoin prices.
Bitcoin’s volatility has generated a lot of non-believers who see it as nothing more than a speculative investment. Some public figures have, however, come out to vocalize their change in opinion on bitcoin, showing a trend toward positive sentiments about crypto.
The crypto market has continued to make it difficult to gauge in terms of price movements of cryptocurrencies. But it’s important to understand how the price of cryptos changes in the market and why. That’s because bitcoin’s volatility is not something that should only be expected. It should also be embraced during these early stages of cryptocurrency.
The fate of Bitcoin as a currency is yet to be determined. This means that bitcoin price fluctuations will continue. For now, their volatility will remain a point of contention in the financial community.
Reasons for the Fluctuation in Bitcoin Prices
Cryptocurrency markets have been volatile since inception. Cryptos like bitcoin have seen massive spikes and drops in their value. There are times when these fluctuations happen within minutes of watching btc live in euro and other nations’ currencies. This has left investors wondering how such fluctuations can occur.
Cryptocurrency volatility is a challenge that a lot of investors worry about when investing. But why the swing in bitcoin prices? Why is the market so volatile?
- Supply and Demand
It’s important to understand how the supply of cryptocurrencies changes as more people buy them and as the mining process continues to produce more coins. That’s what will help you to understand the volatility of cryptocurrency.
Note that when more people want to purchase bitcoin, the coins will increase in value. That’s because of the increase in demand and a limited supply of coins. Considering that there will only be 21 million bitcoins, it creates a rise in price demand. That’s because a lot of people want to purchase more than is available to sell.
As the amount of available coins increases, however, the price of those coins will drop. That’s because more people will have the incentive to purchase them and a lot more will be willing to sell them. This causes the market to be competitive and as a result, the bitcoin prices may drop.
That’s why cryptocurrencies with a lot of coins in circulation experience lower prices. This is compared to the cryptos that may not have a lot of coins in circulation.
That’s because when there are a lot of coins in the market, which means there’s less demand, the prices will go down. That’s one of the reasons why dogecoin is unlikely to ever reach $1. This does not only apply to cryptos but stocks as well as other financial instruments.
- Recent Changes in Opinion About Bitcoin
This has been a long time coming. But a lot of people who are fearful of bitcoin are now changing their tune. The more crypto remains in the public’s consciousness and proves its worth, the more people soften their stance on it. Crypto boasts the largest market cap of all digital currencies.
Recently the U.S Federal Reserve chairman Jerome Powell compared bitcoin to gold. This was a bold statement considering that the U.S government has been concerned about bitcoin’s volatility and its lack of control over the currency.
As for billionaire Richard Branson, he had every right to hate bitcoin. This is after scammers impersonated him to extract bitcoin from victims. That has, however, not stopped Branson from changing his tune and now saying that bitcoin is a bold technology that’s revolutionizing currency.
This kind of change in public opinion has become so apparent that even traditional broker-dealers are now saying that being in possession of some bitcoin is not crazy. It’s a good idea for a diversified portfolio.
- Speculation and Hype
Speculation and hype are one of the main factors that contribute to the swings in the prices of cryptocurrency. When a new crypto launches, It usually experiences an initial spike of excitement when heard of for the first time. This causes people to rush in buying and selling the new coin, which drives up the prices to unsustainable levels.
Once people realize that the coin is undervalued and they lose money on it, the hype and speculation die down. This eventually leads to a collapse in prices as the bubble bursts. It’s quite common for cryptos to experience huge spikes and crashes as a result. Influences and celebrities also contribute to the swing in crypto prices.
- Exchange Volumes Are Not What you Think They Are
What determines the price of Bitcoin?
The determination is caused by a combination of the supply and demand for the cryptocurrency, which is driven by the crypto exchanges. The only challenge is that the millions of dollars in bitcoin transactions that happen daily might not be the real transactions.
The Bitcoin market is believed to be filled with wash trading. This is a method of market manipulation, where the parties buy and sell the same asset to inflate trading volumes. But why is wash trading so prevalent in bitcoin?
It’s due to the fact that the higher the trading volume of an exchange, the more legitimate it seems to be to investors. As a result, some virtual currency exchanges use wash trading as a means to inflate their volumes regularly.
Wash trading was so prevalent at some point. As a result, it was estimated that some exchanges were inflating their bitcoin trading volumes upwards through wash trading. This means that it’s essential for investors to choose the right exchange.
But with no regulations in place to stop such unethical practices, the exchanges have been running wild and boosting trading volumes. Then creating a questionable exchange rate.
Luckily for the entire industry, wash trading got minimized. Now the hope in cryptocurrency trading is that this crackdown on wash trading will result in lower bitcoin price fluctuations.
- The Cost of Production
The cost of production tokens in cryptocurrency is dependent on two main factors. That is the hash rate of the network and the power consumption of the network. In a proof-of-work system like those utilized in bitcoin and Ethereum, miners compete to solve complex mathematical problems for new token rewards.
The more competition there is in mining crypto, the more difficult it gets to mine. It also gets less profitable for minors to continue mining it.
It’s easy for miners to theoretically give up and switch to another crypto when their mining efforts aren’t paying off. The problem is that this creates short-term volatility in the prices as bitcoin cash miners to more profitable tokens.
They can, alternatively, hold onto tokens for a longer time. This volatility can affect the long-term success of certain tokens. It can cause them to lose their market share over time
Hence as mining costs increase, it causes an increase in the value of cryptocurrencies. Miners will not continue to mine if the value of the crypto being mined isn’t high enough to cover their costs. Bitcoin mining, for instance, is a good example with prizes adjusting to miners.
Conclusion
The 2022 bear market has caused a lot of Bitcoin investors to question the viability of cryptos as a whole. Some bitcoin supporters are optimistic that the market will eventually stabilize and that bitcoins will continue to gain value. Others are pessimistic about the future of cryptocurrencies as a whole.
But eventually, only time will tell if bitcoin prices will ever reach their full potential as a global currency and payment method. Or whether the technology underlying them will be relegated to a technological dead-end.
If you are interested in learning more about how bitcoins are created and distributed, you can check out some of the best bitcoin mining sites.