On December 17, 2017, Bitcoin peaked. On that day, Bitcoin was worth about $ 17.4k.
All the media wrote about the price, the initial investors apparently got rich overnight, and some "experts" predicted that Bitcoin would reach $ 1 million before the end of the decade.
Exactly a year later, to this day, the price of Bitcoin fell to $ 3,800.
Despite some people's predictions, Bitcoin did not really die after the price drop. He managed to recover fairly quickly. However, similar price fluctuations continued to occur.
What caused such a drop in price? What caused you to recover so quickly? How often do these price declines and promotions occur?
Let's examine why Bitcoin is so volatile.
Why is Bitcoin so volatile?
For starters, you should be aware that Bitcoin's volatility will not go away any time soon.
As many media outlets have reported 2019 was the most volatile year Bitcoin. Experts expect things to stay the same in 2020.
What causes these price movements? As expected, there are a lot of factors at play.
The cryptocurrency market is similar to the stock market in that real life events often have major effects on it.
For example, even though it didn't start, Facebook Libra's proposed cryptocurrency It has had a huge effect on the price of Bitcoin.
Even the least significant events, such as the tweeting president of the united states they can have an effect on Bitcoin.
Yes, the market is unpredictable.
However, these events affect Bitcoin only slightly. Other underlying factors have a bigger influence and make Bitcoin so susceptible to various influences in the first place.
What are the main factors that make Bitcoin volatile?
We know that there are numerous factors, but are there any main factors that we can identify? Let's take a look at some of them below.
1. Market immaturity
You should realize that although 10 years is a long period for an individual, it is extremely short for a market.
Simply put, the cryptocurrency market is still in its infancy.
It has not reached its full potential in terms of technology or utility. In the early stages of any market, public sentiment is what drives price.
This is why terms like FOMO Y FUD They are used to explain sudden price movements.
2. Type of investors
While there are thousands of people calling themselves active Bitcoin investors, the cryptocurrency market is primarily inhabited by retail investors.
That is one of the main reasons why there is so little institutional capital at stake.
Most retail investors approach the Bitcoin market as a single deal. That is why we do not see too many hedge funds and pensions on the market.
3. Lack of regulation
The last factor we will discuss will not surprise anyone who is remotely familiar with the Bitcoin market.
Until a few years ago, there were no security or regulatory measures in the world of cryptocurrency.
For that reason, some investors were a little reluctant to enter the market. That left the Bitcoin market more prone to sudden changes.
Is Bitcoin's volatility a problem?
It can be assumed that the market will not remain as volatile as it is now, forever.
After all, technological improvements will make transactions faster and more secure, making the currency more popular and, in turn, more stable.
In addition, with new regulatory measures worldwide, new investors will have the confidence to enter the market.
That will not only make the market bigger globally, it will also make it more stable.
But as we mentioned in the opening lines, the Bitcoin market will apparently remain volatile for the foreseeable future.
Will this present a problem for new investors unfamiliar with cryptocurrencies?
The answer to this question depends on your perspective.
Bitcoin's volatility shouldn't be much of a problem when you consider it when creating an investment strategy. Open up new opportunities for experienced and inexperienced investors.
The fact is, new investors will have to educate themselves more.
There are investment opportunities in all the life cycles of the market. And while the market is still in the development stage, that doesn't mean it provides fewer opportunities now when it's not as stable.
How to use volatility to your advantage?
Although volatility is not a complex problem, we must be realistic about it and recognize that it carries additional risk. That means you must evaluate your strategy and see how much risk you are willing to take before investing.
Keep in mind that when it comes to high risk investments, a bad investment can wipe out the profits of months.
1. Margin trade
Let's start with the riskiest option you have: margin trading. Too much leverage could potentially liquidate assets faster than you think.
However, with millions and millions of dollars at stake, margin trading is still quite popular. BitMex It has tens of thousands of people trading bitcoins on the daily margin.
2. Buy in the forts price drops
People who use the HODL strategy keep their Bitcoin for long periods of time.
However, people who don't have patience often wait for the price of one of their alternative currencies to rise before they can sell it for Bitcoin. That allows them to accumulate more Bitcoins. That said, this strategy also requires a little patience and luck.
3. Average cost of the dollar
Dollar cost averaging is the safest investment option. That is why it is so popular with first time investors and amateurs.
It involves creating a schedule and investing the same amount of money over a period of time. This type of investment works best in volatile markets like Bitcoin.
Many factors affect the volatility of Bitcoin. Liquidity, market size, and maturity contribute to Bitcoin's price fluctuations. This can be bad or good for your investment, depending on your investment strategy.
Every year thousands of Bitcoin investors profit from the volatility of the currency. If you are interested in investing and want to know how to benefit from Bitcoin's volatility, be sure to do all the necessary research before getting involved.