Why Are Cryptocurrencies So Unpredictable?

Investors are becoming more interested in crypto currencies, but the significant price volatility discourages others. There was a 14-per cent difference between Bit coin’s cheapest cost in October of Rs 54,942 (October 3) and its peak price on October 27 of Rs 62,672 (October 17). The market is not just ruled by Bitcoin. There are other economic conditions like price of gold bullion, silver, oil price, political condition of a country, technology, inflation, deflation, value of Fiat currency etc. All these are crucial factors that determine the level of investment and segments of investment. Hence, crypto and its up and down cannot be well-fathomed right from the beginning. If you want to trade with a trusted platform, then you can go for crypto purchase in Nigeria. 

Volatility: What Is It?

The difference between an asset’s current price and its historical average is used to calculate volatility: the more variable an asset’s price, the greater its risk.

Due to Bitcoin’s rapid rise in value over the last five years, the asset’s volatility is far higher than that of traditional assets, including such debt or stock. 

What Causes Bit coin’s Volatility?

A variety of causes has caused Bitcoin’s volatility. For example, during the pandemic, there was a sudden fall in the popularity of Bitcoin and investors had to think twice before investing. Since Bitcoin has no single, fundamental value, or one single value always, it constantly fluctuates in the global market. Along with that, there are many rumors and false assumptions about Bitcoin. This currency’s supply or demand shocks are not absorbed by the Bitcoin market efficiently, which significantly influences the price. This may have a significant impact on Bitcoin’s current value.

Without Cash Flows, Speculation

The nature of Bit coin has intensified the speculative activity around the currency. A Bit coin investment’s worth is entirely dependent on the value of Bit coin in the future. Instead, most assets are valued regarding the future worth of their expected cash flows. 

Instead, the price or demand of Bit coin is based on how it is being utilised in the global economy as a digital currency. There is a wide variety in pricing expectations since each assumption significantly influences the price.

Small Capacity Market

Rapid price changes might also be attributed to the way Bit coin is disseminated. The market forces of an asset determine the mechanics of trade. Despite the widespread interest in Bit coin, its market valuation is just 10% that of gold. Individuals or corporations with large sums of money may influence the price of bit coin by purchasing or selling it. 

Individuals or organisations also own significant amounts of bit coin. If a major bit coin holder chooses to sell, the currency’s supply will rise dramatically in a short period. 

Is Bitcoin Going To Continue To Be Volatile?

As time goes on, many of the reasons that fuelled Bit coin’s volatility in the previous will go away. People’s ability to transact in money is being restricted in countries all over the globe. This will reduce volatility when long-term restrictions on Bit coin are established.

• It seems conceivable that individual investors’ ability to influence the market will diminish as their investments expand. As the price of Bit coin rises, more fiat money will be needed to keep the market pressure on it.
• It is also a fact that the market of Bitcoin gets manipulated every now and then. There are rich manipulators who spread fake news about the Bitcoin market and its probable growth potential sometimes, when in reality it might be that Bitcoin is actually experiencing downtime then. This causes people to lose money in a huge manner.
• On the other hand, these wealthy investors will not be capable of doing this indefinitely. They have two options: either keep their bitcoin and reduce selling pressure, or they can sell their bitcoin and divide the asset more equitably.

Finally yet importantly, the Bitcoin markets have grown more and more efficient all the time. New types of exposure are becoming available to investors, and the market is becoming more efficient. Massive deals in an efficient market will not affect the Bitcoin price. 

Conclusion

Since the emergence of large institutional investors in recent months or years, bitcoin has remained volatile. With a greater grasp of what drives these dramatic price fluctuations, you will be better equipped to maintain your composure and stay on top of the always-shifting crypto market.