Does Investor and User Sentiment Lead to Bitcoin’s Volatility?

• Bitcoin is the first and most important element of the decentralized ecosystem that transformed the blockchain landscape.

• Because of its price volatility, it always remains surrounded by controversies.

Bitcoin is the first cryptocurrency founded back in 2009. This platform not only introduced new methods of finance, but also served as a base for development of several other large scale blockchain platforms like Ethereum. Its unique functionalities and offering features led to its quick and wider adoption, while its price volatility always remains a big hurdle in the way of being an ideal choice. Due to various reasons, its price always faces fluctuations, while users look forward to other investment options.

Reason Behind Bitcoin’s Volatility

Among several reasons for volatility in Bitcoin’s price, Supply and Demand is one of the major factors that puts an impact over this crypto. These volatilities represent both opportunities and risk across the market, mostly in financial investment. Volatility is nothing but a change in security’s price within a certain period. Unlike stability, volatility in price creates new ups and downs where some investors take advantage of these price fluctuations.

Here we have mentioned some of the major factors that create volatility in price.

Supply and Demand

This creates a great influence on the prices of most commodities unlike any factors. Total coin circulation and people willing to pay primarily affect Bitcoin’s market value. This cryptocurrency’s total coin value is hard capped to 21 million. This design was made to passively increase the coin’s value as the closer this circulation gets to its limit, its price is likely to get higher simultaneously. 

Bitcoin’s price will likely fluctuate in response to the actions of big financial players, as they battle for ownership among reduced supply.

Investor’s Action

As Bitcoin’s supply is getting closer to its limit, its demand keeps on increasing. Longrun bitcoin investors prefer to hold their coin to get wealthier, while exposing only fewer assets. According to the research paper of “National Bureau of Economic Research” , one-third of total bitcoin is holded by whale investors in order to get higher future values.

Intermediaries and financial organizations are putting continuous efforts to get Bitcoin-based securities approved by the SEC (Securities and Exchange Commision). With increase in the number of designed securities, the number of coin holding also keeps on rising parallel to it.

Regulatory Concern

Regulatory concerns are anticipated to impact Bitcoin’s price for a short-term. This aspect is still being argued and debated over its significant impact over this crypto. Governing power’s perspective of Bitcoin can also put an impact over the price. The IRS (Internal Revenue Service) considers Bitcoin as a convertible digital currency because of its capability of being converted into cash.

It’s also considered as a capital asset to be used as an investment method. Mining of Bitcoin has to be reported to governing elements as it’s considered as income, and taxis imposed on the basis of its value at the time of receiving.

Conclusion

Users with malicious intent sees this opportunity as an opportunity to create inflation and deflation of price to fulfill their personal motives. Because of the sudden surge in price, cryptocurrencies are always considered as unstable investments. Still its high profitable value and unmatched return values keep it ahead of other investment options. Users must trade on an asset after doing their own research and analyzing all relevant consequences.