Why Does Bitcoin Price Keep Fluctuating?
The Bitcoin Price Keeps Fluctuating based on several variables.
What are the variables(Bitcoin Price Keeps Fluctuating)?
- The spot or exchange rate against the Dollar.
- Factors related to the market information and perception.
In the current state, Bitcoins are unique.
There’s no central control.
Therefore, they are not under the control of any Central bank or Government.
As a consequence if that, the peer to peer transactions are susceptible to even more fluctuations. Remember that there is no Volatility Index set for Bitcoin.
What we see as the equilibrium is therefore perceived yield by the powers of supply vis a vis demand.
On this, we must not also be blind to the other brighter side of Bitcoin, especially by them being decentralized.
These are the actual reasons why Bitcoin Price Keeps Fluctuating;
1. Bad reputation from Press
The geopolitical events scaring the investors by yielding fear among them.
How is this?
Let’s get some retrospect scene on this.
Bitcoin was the main currency in the Silk Road saga before the crackdown, this bad reputation, associating Bitcoin with crime and drugs caused panic among investors, the currency lost in value but regained after the saga.
The point is that bad news with Bitcoin at the center does harm to the reputation and by extension the value of the holders.
This eventually causes a shift in the asset held and its transfer price, hence the fluctuation in price
2. Perception of Value
Bitcoin fluctuates in value against the fiat currencies (Government issued legal tender) because it adopts properties similar to gold.
Bitcoin has limitations of 21 million BTC mining, hence limited in supply.
Fiat currencies are under the control and management of the respective government to limit inflation.
For Bitcoin, with respect to the demand and supply, investors allocate more or less to mining, hence the allocation shifts the supply against the demand, hence, a fluctuation in the spot rate and the value price in general.
3. Variance on the perceived store of value and method of transfer of value.
-Legal tender exhibits similar properties, storing the value that can be used in the foreseeable future as well as being an object of transferring the property value.
The point that Bitcoin is volatile weakens its powers as a sore of value. Luckily, Bitcoin exhibits almost frictionless transfer of value from its property of being a decentralized currency and the low transaction costs.
Both of these factors improve or degrade the value of Bitcoin, affecting the value perceived by the holder.
The effect of the perceived value by a holder gives a reason to hold or dispose of the Bitcoin, at varied individual levels, hence the fluctuation in values due to valuation.
4. Lesser option value for large currency holders
Holders of Bitcoin with large floats of it has no clear provisions of liquidation of it against the fiat currencies.
Due to the disparities in mass adoption, this causes a fluctuation in the exchange rate at different rates of exchange, hence affecting the overall exchange position, this results in a fluctuation in the prices.
More to this comes from the low adoption, the final point of exit is to convert the Bitcoin to a more acceptable currency like the Dollar.
Since the negotiations for fiat currencies have no central point, the settlement rate-costs differ, this contributes to the ambiguity of the values and finally the fluctuations in the price
5. Security breaches in causing investors to react negatively
-The exposed vulnerabilities have ended in stolen Bitcoin.
That spark of fear scares investors and Bitcoin loses in value. This also applies to traditional currencies.
Fear results in lost confidence and by extension lost revenues.
The flow of information causes panic or reverses and hence the fluctuation in the price of Bitcoin.
The challenge with the exploits is that they hit significant investors at significant levels. Theft triggers fear and loss of the valued Cryptocurrency.
6. Tax treatment of Bitcoin
Due to recent advances and adoption, some nations have recognized Bitcoin as an asset generate key information and reduce the volatility of the Bitcoin in the respective government that recognizes that.
This has a direct bearing on the rate of adoption for Bitcoin as an alternative currency.
Some Central Governments term dealings with Cryptocurrency as illegal, harming the value of the currency and also delimiting investor interests within their national jurisdictions.
Parting Shot(Why Bitcoin Price Keeps Fluctuating)
Bitcoin unearthed a host of opportunities that were unforeseen before its emergence. Unfortunately, Bitcoin has been hit by a slow rate of adoption by the potential investors.
The recent advances in Governments relaxing the grip on Bitcoin are well for it. When most of the Governments relax the controls, the volatility will be driven by investor’s perception, with a corresponding effect on its value.
Please feel free to leave comments on any point I may miss here as to why-Bitcoin Price Keeps Fluctuating. Via comments, below.
Thanks for reading.