Why is the price of Bitcoin and other cryptocurrencies so volatile?
People knew that every cryptocurrency would be volatile, but they believe in the other advantages. There is a way to measure it by using the Volatility Index, or for Bitcoin, BitVol. It may seem like it was the most significant coin that changed a lot of its value during the past decade, but other cryptos had even more significant drops.
This year was one of them where we had a 30% drop and the highest point ever. This would never happen with money we use in everyday life or anything compared to gold. They are pretty stable, but we would have to move to other payment resources at a certain point.
It’s Hard To Determine Future Value
The future value will only matter if it becomes a part of our lives to spend it on many products and services. This is better explained if we take the term store of value, which means that the asset can be used in the future at certain predictability. You should be able to exchange it for services or goods.
With Bitcoin, we have some signs that it can be used this way but many countries still don’t know how to adapt to it. Of course, banks are also one of the factors we don’t have digital currency. This is also one of the reasons why you shouldn’t predict the future because you can’t do it with something that has very high ups and downs. Get more info here:
Even with so many people involved in the market and millions of investors, in almost every crypto you have some individuals that are considered whales. These holders have a large portion of the currency which can have a big impact on the market if they start selling. They are not even sure what would happen if they try to exchange for fiat because the value grew a lot.
In most cases, withdrawal takes 24 hours or more when you want to convert to fiat. Many things can happen in this period, and they are not willing to risk it. It may seem like people are now the ones running the game instead of the government, larger corporations that own thousands of coins are in charge.
News Have An Impact
Although, the biggest problem we have with crypto is the extreme votaliity. Anyone can cause a disturbance if they have some luck. Whether it’s good or bad news, it will make the coin sway and make others think twice about selling or buying. On a larger scale, government statements and geopolitical events also have an impact.
When Tesla opened up for crypto payment options, everyone was happy that we have such a big-name trying to make a change. But, after the benefits it has, they made the situation even worse when they no longer accepted cryptocurrency as a payment option for their vehicles. There was news about the bad advantages it can provide to the illegal activity,itswhich brings trust down to the investors.
All this bad press only benefits from letting people learn more about it, but in the long run, it gives some kind of fear factor that big-name trying tomay not be the best solution. So even if some news is accurate, it’s essential to see the bigger picture and check the downside of money we use today.
There was news about significant losses every year, so it has to happen to someone considering how volatile Bitcoin and others are. Because of the guy that spent 10 BTC on pizza now worth $600k, to the large corporations that had poor management when selling their product for crypto, there’s some kind of fear in making these changes and adapting to BTC.
Many companies learned from their mistakes, and we still have many that operate with regular money and cryptocurrency. Of course, there will always be those two who want to implement it for everyday use, but most are scared because of the volatility.
Some of the biggest investors are third-world countries that saw potential in BTC because of their bad situation with their currency. When they have high inflation, they are turning to Bitcoin because it is less volatile when you compare their currency to the USD. They would make a loan when they need in crypto and trade it for USD if it’s needed.
This can be also used against them when you are gaining a lot of their money for a smaller investment. Their market can be easily manipulated by outside investors using debt instruments. They have a lot of mining facilities so there’s no chance this type of manipulation will stop in the near future. The only way is to bring some kind of stability where it will be harder to make profits using this method.
The problem with volatility is that it can be caused by a certain action and have a positive and negative impact. IRS issued that BTC is an asset for tax purposes. The positive thing is that someone like IRS or Internal Revenue Service has recognized Bitcoin, which would be unthinkable five years ago.
But, because we are talking about tax, there are more negative effects the users have. The first one is how difficult it becomes for us to use it for paying over the internet. It’s not the processing that is the problem. It’s the market value at the point of payment. You will have to record it for every transaction.
Besides impacting the small users, with the IRS starting to participate, we can expect stronger regulations to influence companies. These regulations are usually firm in the beginning when it’s hard for them to control. There are still many changes to be made so it’s not yet something that will crash the market. We need to have taxes for many purposes, but at this state of crypto, it’s not very manageable.