Why Are Bitcoin Prices So Volatile?
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Why Are Bitcoin Prices So Volatile?

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If you are an active trader in the world of digital currencies and indeed take advantage of extreme Bitcoin price movements to look for profit, fluctuating Bitcoin prices certainly bring happiness. But it’s different if you use Bitcoin as cash or fiat. If you exchange your one million to become Bitcoin and intend to spend it on an online site, of course, you don’t want your Bitcoin value to decrease because the price of Bitcoin has suddenly dropped. The bitcoin that you have now cannot pay for the Terra 1 Hard Disk you want and finally, you have to buy additional Bitcoin to cover the shortfall.

The fluctuating price of Bitcoin has become a daily complaint for Bitcoiners all over the world. What factors actually influence the ups and downs of the price of Bitcoin?

  1. The small volume of Bitcoin that is spread on the network
  2. Total bitcoins in circulation

As we know, the price of Bitcoin is determined absolutely by supply and demand. If many buy Bitcoin, the price will rise and vice versa. The volume of Bitcoin in the system is still relatively small, namely 14.8 million Bitcoin (as of November 2015, based on the chart on blockchain.info). This is certainly different from the total US dollars in circulation, which is 1.34 trillion USD (as of September 2015).

It should also be noted that not all Bitcoin is actually traded by users. Most of the Bitcoin is lost in the system due to several factors, one of which is the case of losing the private key or hard drive that holds 7500 BTC in it. If viewed on this site, Bitcoin market cap around the world is still slightly below the 5 billion USD mark. Because the circulation volume of Bitcoin is still small, when someone buys or sells Bitcoin at a large price, the price will move to the extreme. Bitcoin price volatility will be damped if more and more Bitcoin users are scattered.

A situation where there are more Bitcoin traders than Bitcoin users

Today’s Bitcoin users are mostly just traders who play Bitcoin like stocks, not Bitcoin users who actually use Bitcoin to transact or shop for their daily needs. It is understandable that being a Bitcoin user is rather difficult because merchants who accept Bitcoin are still relatively few. It’s likely that you haven’t been able to buy an apple at the nearest supermarket with the Bitcoin that you have. And since Bitcoin technology is quite complex, not everyone can ‘consume’ Bitcoin as easily as a programmer. Therefore, more people choose to become traders and hoarders (people who buy up lots of Bitcoin when the price is still low and are saved with the hope that the figure will break through $ 1000 / Bitcoin) in order to make a profit.

The impact, when the price of Bitcoin increases, they will sell the Bitcoin simultaneously, so the price drops again. The situation of “Panic Sell” and “Panic Buy” often occurs due to different perceptions and this is what causes the price of Bitcoin to be very volatile.

News that is spread globally

Since Bitcoin is the first digital currency with blockchain technology that has the potential to change the world financial system that exists today, of course Bitcoin has received a lot of attention from various global media. Starting from being used as a transaction tool on dark sites like Silk Road, transacted on the runaway MtGox market with trillions of customers’ money, to be governed by strict government regulations, Bitcoin tends to be more often tempered by bad news.

But in 2015, the blockchain technology that drives Bitcoin is also increasingly looked at by the world’s top banking institutions such as Citibank, AXA and Commonwealth. Good news, such as NASDAQ, which began collaborating with Bitcoin, Microsoft and Rakuten companies that received payments in the form of Bitcoin, to the news of presidential campaigns in various countries that received donations in the form of Bitcoin. Cryptocurrency is now no longer underestimated. The world is increasingly ready to move towards a more sophisticated, cheap and efficient financial system.

Ordinary people who do not understand very well about Bitcoin become very affected by various positive and negative news that is spread by the media. Whereas people who use Bitcoin as a trading tool without realizing its true potential as a world currency, will make the news as the basis of their trading decisions. Say for example, one day Bitcoin was declared illegal in Indonesia or the case of Mt Gox repeated and now hit CoinBase. Of course people will sell their Bitcoin at the same time because of fear and eventually the price of Bitcoin drops. Or maybe there is good news like Amazon that accepts Bitcoin payments or the desire of world investors to move all of their assets to Bitcoin. Of course the price of Bitcoin will skyrocket dramatically.

Investment Fraud (Scam)

Not a few people who allocate their assets in the form of digital currency because it was promised by certain companies that they will get profits many times over. Tempted by attractive offers, some investors put their Bitcoin on an investment company site without digging for more information about the company. In the first month, their Bitcoin managed to multiply 5-fold, and in the second month they put more Bitcoin in the hope of getting more profit in the third month. These investors buy Bitcoin to more than 1 billion rupiah per person, and they continue to buy Bitcoin until finally the world price of Bitcoin increases. With large capital, investors should get abundant profits. However, when investors intend to take the money in the third month, the site is suddenly inaccessible, and the company disappears without a trace. As a concrete example, you can see what is happening with the MyCoin company in Hong Kong.

The result of this case is that they will resell their remaining Bitcoin suddenly when bad things happen to Bitcoin because they actually don’t really understand the potential of Bitcoin as a world currency. They only buy Bitcoin because they are tempted by the profit offer from the investment company. It is also probable that investors will spread the news that Bitcoin is a form of scam that needs to be avoided, even though what causes losses is that certain companies are not the Bitcoin system itself.

Bitcoin is hacked and taken away by other parties

Investors and Bitcoin users who have just jumped into the world of cryptocurrency will be very easily frightened if they hear that someone has lost Bitcoin because of being hacked. Please note in advance that your Bitcoin can be lost if you don’t take care of it properly, for example by storing your Bitcoin on a trade exchange not in a personal wallet; entrust your Bitcoin to scam companies that promise high profits; or use the same password for your Bitcoin Wallet with your social media account. If you do not secure Bitcoin the way it should, it is not impossible if your Bitcoin is stolen.

Actually a case like this is a personal mistake. Someone who can secure their Bitcoin by storing it in a cold wallet or paper wallet, for example, and provides multiple layers of security such as Google Authenticator, email verification and SMS PIN, will be very difficult for the wallet to be hacked by other users. Unfortunately, there are still many people who store their Bitcoin in companies that are less reliable that can be closed at any time and run off their money. Of course you still remember what happened at Mt. Gox

There are still many factors that cause the price of Bitcoin to be so volatile, but in my personal opinion, the five factors above are the five main reasons behind the price movement of Bitcoin. As long as those five things are still going on, then the price of Bitcoin will continue like this. Being a Bitcoin user, you must be prepared to risk your Bitcoin changing to the price of $ 1000 / Bitcoin as in early 2014, or returning to the price of $ 1 like when the new Bitcoin was created.

No one can guarantee that Bitcoin will always make a profit, but everything returns to each individual. Do you see Bitcoin as something beneficial because of what? Is it because of the price? Or because of its ability to send money for free anywhere without fear of being stolen by a third party? For me, Blockchain and Bitcoin technology is an invaluable innovation, and if at least one person in the world besides me sees Bitcoin the same way, then Bitcoin, like gold, will continue to be valuable.

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