The cryptocurrency market has been volatile ever since its inception; however, the last few years have been a wild ride for billions of investors from across the world. A majority of people have converted a few thousand dollars into millions via bitcoin trading whereas, some of them have lost all their hard-earned money.
Bitcoin is a digital currency, and unlike traditional currencies, it uses an online ledger for storing its transactions. It works on a Blockchain technology that provides a peer-to-peer network, and every transaction made using bitcoins is recorded on the blockchains’ blocks. If you are also looking forward to starting trading bitcoins, make sure to check out go url.
Several factors drive the price of bitcoins. To make the most out of your investments, you must be aware of the factors that influence the cost of these digital coins and ways to leverage them to your advantage.
The Bitcoin Market Is Still Evolving
Despite the attention that bitcoins have received from the media, the bitcoin market’s size is still minuscule compared to gold and fiat currencies. The highest the crypto market has been able to reach is eight hundred billion dollars, which is practically nothing compared to the total valuation of the gold market and stock market.
The small market size accounts for the fact that small forces will always have a significant effect on the price of bitcoins. Say, for instance, a group of investors decide to sell five hundred dollars worth of gold. They would hardly create any ripple in the gold’s market prices. However, if the same happened with Bitcoin, the whole market will get destabilized, and the prices will fall.
On the other hand, the bitcoin market is still developing and can investing in it prove to be fruitful as well. For instance, a few days back, the Telegram team of developers announced that they are looking forward to launching a blockchain platform and their own digital coin. None of these projects have been introduced in the market yet. However, the media has already marketed the news, which has brought great publicity to the platform.
Bitcoins Are Entirely Digital.
Bitcoin is a purely digital asset and is not backed by any physical entity. It means that their valuation is determined entirely by the demand and supply in the market. Since the supply of bitcoins is fixed in the market, the price depends on how many people wish to buy these digital coins at the moment.
Since no physical entity backs the value of bitcoins, it means that it is just the people’s faith that is backing them. If people no longer believe that the value of bitcoins might fall, then their valuation will increase and vice versa.
The Technology Is Not Yet Developed.
Blockchain and other similar technologies are still in their development stages. The idea of cryptography-based currencies that are also decentralized is just a decade old. Hence, it will take a while for the market to mature. However, many companies are actively using blockchain technology for advertising and marketing purposes. By looking at the transparency of blockchain technology, more people are finding it attractive and hence are exploring this field.
Numerous stubborn technological problems like the blockchain scaling problem might cause a reduction in the crypto price when they do not get solved within the timeframe that is expected of them. Another reason behind this is the crystallization of these coins in the form of high transactional costs and network congestion.
There are numerous other pivotal developments in technology that will have a boosting effect on the prices, such as the Bitcoin lightning network or other new popular apps made using blockchain platforms like Ethereum. There are several cryptocurrencies being introduced in the market, and all of them are looking forward to competing and taking away some share of the market from the already established ones.
It is one of the significant drivers of price fluctuations in the bitcoin market. In this, the investors bet whether the price of a particular digital coin will go up or down and accordingly sell and buy these coins. Numerous speculative traders make vast amounts of money by guessing in which direction the price of the coins will swing.
If you can guess when the price of bitcoin will surge upwards and buy the coins right before it happens, then you can make a huge income out of it. Similarly, if you sell a currency right before the market crashes, you can save yourself from incurring heavy losses. Numerous investors are continuously trying to gauge the direction of the surge of the crypto market. These bets based on their speculations lead to even more volatility in this choppy marketplace.
Media plays a significant role in the volatility of these digital coins. Investors and speculators rely on the media to know about the price surges of bitcoins. The price of these coins surges when positive news is posted about them. Similarly, the prices of these coins can fall if the media posts anything against these coins.
Low Entry Barrier
This is the last factor on our list and yet is one of the most important factors that influence the price of bitcoins in the market. Unlike the stock market or the real estate market, the barriers to enter the crypto market are extremely low. Investors do not need a trading license or even the support of lawyers before they start trading. Moreover, there is no minimum capital amount that they need to invest. All they need is a good internet connection, and they are good to go. Thus, with so many amateur traders in the market, the volatility of bitcoins is relatively high.
The popularity of bitcoins is increasing every day. However, their prices are highly volatile and thus unpredictable to a great extent. All the factors mentioned above contribute to increasing the volatility of bitcoins. Make sure to consider all these points before you start trading in the crypto market.