The Reasons for Bitcoin’s Volatility

The Reasons for Bitcoin’s Volatility

Bitcoin isn’t the first or the last asset to be so volatile. However, when an asset swings so drastically over short periods, there are usually a few good reasons for it.

When Bitcoin was first available in 2009, it cost less than ten cents per coin. Even during 2010, the price didn’t go much higher and it took until 2013 for it to finally hit $1000.

Since then, it started hitting bigger and bigger numbers but often dropping thousands over days or weeks.

Bitcoin hit an all-time high in November of $68,000 but as of today (February 14, 2022), it’s sitting at $42,530. This is a huge drop unjust three months. And one of the many big dips and escalating highs that Bitcoin has experienced over the last 13 years.

So what are the reasons for these swings and are they anything to be concerned about? 

1. Supply and Demand

Every commodity in the world is affected by supply and demand. Supply goes up, the price goes down. Demand goes up, the price goes up. Bitcoin is included in this list of commodities and its value is absolutely affected by supply and demand.

You see, Bitcoin is limited to 21 million coins. Once all 21 million are released into circulation, there will be no more to mine or mint and the only way to get hold of one will be through buying or exchanging.

So, with each passing day, more BTC is being mined and fewer are left remaining. You can check the live supply here to keep an eye on how long is left until there are no more.

This means that the increased interest in BTC over the last few years and the relatively small number of Bitcoin left have contributed to the drastic prices of Bitcoin’s value. The more people want to get hold of Bitcoin for themselves and the fewer there are to get hold of, the more valuable they are likely to become.

For now, it’s impossible to say what will happen to the price once all 21 million have been mined but it’s very possible that as that day draws ever closer, the demand for BTC will increase wildly.

2. Influences from the News

News, mainstream media, and other types of media outlets all have a massive influence on the markets. They present incorrect information, biased opinions, predictions, and facts. All of these mixed together can cause people to panic buy, panic sell, or make rash decisions.

The influence that the news has is insurmountable and can lead to flash crashes or upticks with no real basis.

Another influence similar to the news is the power that certain people have over a large audience. For example, when Elon Musk Tweeted about Dogecoin, the price increased dramatically in an instant.

Likewise, if Musk were to ever publicly comment on this crypto negatively, no donut the price would drop equally as dramatically.

If an individual has a large audience and can influence followers can also easily be the cause for volatility.

3. Actions of Investors

Even though there are currently several thousand other cryptocurrency options, Bitcoin is the most popular among investors. The demand for Bitcoin has increased an unpredictable amount in recent years and this has changed the way that investors deal with their current assets.

As the demand has increased, investors have kept hold of their Bitcoin for longer. Choosing to keep it in their wallets as a long-term investment rather than selling at high prices to make a profit.

As the number of Bitcoin available to mine becomes less, the more value there is in keeping hold of the Bitcoin you already have. If something is starting to become rare, it’s a better idea to keep what you have rather than sell it off

This reluctance to sell means that there are fewer people who can buy or trade and gain Bitcoin for themselves. The demand is high, the supply is low, therefore, the price goes up.

For now, there is a bigger scramble than ever for people to get their hands on this crypto so people have a lot of confidence in the Bitcoin price going up and up in the future as well.

4. Limited Age

One commodity that, while it has brief volatility on occasion, has been stable and profitable over the long term is gold. The trade and exchange of gold is an old business and its age certainly adds to its stability.

Likewise, the majority of fiat currency has been fairly stable as a commodity. Sure, exchange rates between countries fluctuate depending on the world’s circumstances. However, fiat currency’s value is, up to a point, relatively predictable by looking at the economic situation of the issuing country, therefore, making it a more stable investment.

On the other hand, Bitcoin has yet to enjoy this long-term stability and predictability due to its limited age. As an exchange, Bitcoin is young and still in the phase of price discovery. While Bitcoin endures through its growing pains, the price is also going to be less reliable and predictable.

5. Regulation

Any rumors regarding the regulation of Bitcoin always have an immediate effect on Bitcoin’s price. Although, fortunately, it’s only ever short-term. But even short-term fluctuations, especially if they are large, lead to panic or overanalysis among experts.

When these fluctuations occur, the more they’re analyzed or debated, the more investors question its future which can cause further, short-term blips.

Another example is back in late 2021 when the Chinese government announced that all cryptocurrency facilitations and transfers were now illegal. Mining farms were also closed down across the country which caused a temporary price drop once the news of this started spreading over the world.

FAQs About Bitcoin’s Volatility

How High Can the Price of Bitcoin Reach?

No one knows how high the price can go. Even experts, investors, or long-term enthusiasts could never be the answer. Five years ago, few people would have guessed that Bitcoin would spend time hitting nearly $70,000, and yet, towards the end of 2021, it did.

We’ll have to just watch this space to see how high this crypto will go.

Why Does BTC Fluctuate So Much?

There isn’t just one reason for the rapid or seemingly extreme fluctuations. However, it is a combination of the following:

  • Supply and Demand
  • Influences from the News
  • Actions of Investors
  • Limited Age
  • Regulation

Is Bitcoin Safe to Buy?

Yes, there are several different and safe ways to buy Bitcoin where you shouldn’t experience any problems. However, it’s vital to remember that Bitcoin, like other commodities, is not a guaranteed investment. Only invest what you can afford to lose and cash out if the stress of investing negatively affects your life too much.

Who Is the Bitcoin Network Controlled By?

One of the key selling points of Bitcoin and a big factor in its success is that no one person controls the network. Rather, it is controlled by all the users on the network.

Developers can make improvements or fix issues in the software but they can’t force large changes or redevelop the network.

For the network to run and operate as it should, there has to be a consensus among all the users which means it's in the best interests of all users and developers to safeguard this consensus.

Is Bitcoin Illegal?

As of January 2022, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China have all banned cryptocurrency. In other countries, there are extra restrictions of rules such as in Argentina or Thailand.

Nonetheless, this still leaves the vast majority of countries in the world where Bitcoin and altcoins are not illegal.

As Bitcoin and other crypto become more popular and more businesses start accepting it as payment, countries are talking more about the rules they wish to put in place or how they can better track crypto activities. But there is nothing to report as of the time of writing.

Important Points to Takeaway

  • Bitcoin is a commodity and like other commodities, the price is greatly affected by supply and demand
  • Media influence and even individuals’ influence with a large audience can affect the price in both a positive and negative way
  • The price of Bitcoin going down or experiencing a flash crash isn’t an immediate cause for concern, this is a normal expectation and crypto can and does recover from crashes
  • Bitcoin is a legitimate investment however you are not guaranteed to make money and you should only invest what you can afford to lose

Why Joining a Mining Pool Is the Answer for Miners

A mining pool is a group of people who collectively agree to pool their resources and share the profits.

For example, have you ever split the cost of a bunch of lottery tickets with work colleagues or friends with the agreement that if one of the tickets wins you all share the prize? While you might have to share the prize, there is more chance of you winning in the first place. After all, it’s far better to share $1 million, than it is to keep 100% of nothing.

Well, a mining pool works in the same way. The group of miners will collectively use their resources to create more mining power. The more mining power you have, the higher the chance is that you will generate a block on the blockchain and therefore, receive the reward.

One of the best parts of joining a mining pool is that you don’t have to match other investors. The reward is divided relative to how much power each member contributed. This means you don’t have to be stinking rich or own a ton of resources in the first place. You simply take out proportional to what you put in.

You should also bear in mind that the mining pool will have an owner who will, rightfully, charge each member a fee for joining. The amount will vary from owner to owner, but it’s unlikely to ever be an unaffordable amount since the owner also benefits from having as many members as possible.

Expand Your Bitcoin Horizons with Mining Syndicate

If you would like any more information about starting or expanding your Bitcoin horizon; reach out to us at Mining Syndicate. Our mission is simple: Strengthen the Bitcoin network by enabling small-scale miners to affordably purchase and reliably host miners.

As a small miner, Chris became frustrated by the lack of hosting options available for miners with under 100 units. As luck would have it, he found a 2.5MW mining facility for sale right down the road, and thus, Mining Syndicate was born. Facilities #2 and #3 are currently launching and #4 and #5 are in the works.

Why is Mining Syndicate so successful? Because we have a team of people who are just like you, eager to be a part of the future of mining. If you would like more information about how you can be a part of Mining Syndicate, how our facility works, or the products we sell, you can reach out to us here.

You can also check out our list of miners we currently have in our catalog, as well as our list of best sellers.

Join our mining pool and see how your future can change!