If you’ve kept an eye on the crypto headlines during October, it is highly likely that you’ve seen experts predicting a possibility of Bitcoin moving towards an upward swing, soon followed by the news of a mysterious decline that left every crypto coin in the red. Quickly afterwards, you might have noticed that the market went through a calm phase, with hints at a turnabout soon after. All this must have left a lot of new crypto enthusiasts scratching their heads. “Why does the price of Bitcoin move SO much?”, everyone may have wondered. This phenomenon of price fluctuations is known as volatility and here we dig deep to find out exactly what makes the price of Bitcoin so volatile.
Bitcoin Is Not Backed By a Fundamental
Bitcoin (BTC) is simply a digital or virtual currency that is used for facilitating transactions, upon the payment of a fee. It does not generate any return by virtue of its value. It can lead investors to invest in cryptocurrencies, including Bitcoin, and make a pretty penny out of it if the market fluctuations cause the price to rise, but that is about it. No fundamental backing exists. Hence the credibility and belief in Bitcoin oscillates quite wildly based on a multiplicity of other factors and makes the price so volatile.
Bitcoin Still Remains a Rather New Technology
It’s just been a decade since the mysterious Satoshi Nakamoto released Bitcoin and the trust quotient and mainstream adoption of this cryptocurrency still remains rather low. As a result of this uncertain reputation, Bitcoin’s price is susceptible to the slightest bit of rumour or fear that can lead BTC holders to start selling and drive the price down or vice versa.
Sketchy Government Attitude
Governments around the world have not developed a coherent or definite stance towards cryptocurrencies including Bitcoin and this also fuels uncertainty and price fluctuations. The sense that taxation status, legality etc can all change overnight with changing stances of the authorities adds to the propensity to fluctuate. For example, when many of the key banks in South Korea began to try out cryptocurrencies, the prices rose. Similarly, when China took action against ICOs (initial coin offerings), there was a sharp fall.
Market Manipulation and Scams
While varying arguments can be posited about market manipulation, many strongly believe the Bitcoin price is frequently manipulated. The stablecoin Tether is often blamed for BTC price manipulations, and so are pump and dump scenes. Having said that, Tether is sometimes also said to cause bitcoin’s price to leap, causing volatility. Similarly, a large number of crypto scams have also dissuaded many from trusting Bitcoin. We have seen mushrooming of Bitcoin scam sites misusing famous names and investors losing their Bitcoin holdings in investment scams. All these have only served to confuse investors and users, leading to sharp changes in the prices.