Prediction

Why is Bitcoin so Volatile?

Among the many cryptocurrencies, Bitcoin (BTC) has the largest market capitalization.

Its market cap hit an all-time high this winter 2020. It was valued at over $350 billion. Currently, one BTC is valued above $18,000. If you had picked some BTCs up after its crash in 2017, you are doing very well! 

For those who have been following the rise of BTC, we can all agree that this cryptocurrency is so volatile simply by looking at its price from 2015. But why is it so volatile? Here are some of the possible reasons:


Speculation.

There is a lot of speculation around this decentralized currency because there are things we do not know including the identity of its creator who supposedly holds a large portion of the 21 million bitcoins. If he is alive and decides to liquidate his coins, you will see the BTC price taking a hit.


Blockchain is still a new concept.

If you were to ask a random person on the streets, it is very likely the person does not know or understand how BTC gains its intrinsic value. This creates anxiety and skepticism that greatly influence the price momentum. 


Negative press does not always serve well.

BTC has been hit hard by its association with the black market. This most likely makes investors nervous because negative press might call for government oversight. That would loosen the appeal of the decentralized cryptocurrency. The one greatest thing about BTC is that your transaction does not need to go through a third intermediate party, e.g. PayPal, who needs to approve your transaction. It’s a peer-to-peer transaction so governments can have no business in your private life. In another word, it preserves personal privacy. Though, you can also argue that any press coverage of BTC can also be great publicity because it is showing that governments are coming to terms with the inevitable future where blockchain powers global transactions.  


Still in the Buy-Sell cycle.

Much of the BTC transactions are actually buy-sell transactions between investors rather than merchant payments because the technology is not yet widely available to small merchants. Thus, when a large number of Bitcoins changes hands, its price will very likely take a swing.


The unknown time frame.

There is so much excitement around blockchain being adopted into our financial system but nobody seems to know when we will fully integrate BTC into the system. A reason for that is that governance and policymakers are still figuring how they will oversight this cryptocurrency. Another possible reason is the technical difficulty in scaling the decentralized system because the block is getting filled. The core developers of BTC are still figuring out the long term solution for this. If it cannot be integrated, BTC will have a very limited pool of users and thus less valuable. 


Bitcoin is going to remain in volatility till there is a working solution for scalability and a time frame for its integration into the global financial system. With so much excitement around cryptocurrency, the BTC price still has room to run but a setback in developing a solution for scalability can significantly affect its price.

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