Key Factors Influencing Market Volatility of Bitcoin

Bitcoin had quite a quick journey to popularity from its first appearance in 2009 till 2010 when its price reached $0.09 a fraction of a dollar further ahead.

After that, the ride might not be swift and consistent, but Bitcoin made a journey, created great investment scopes, and created millionaires as well as bankrupts.

The crypto market and Bitcoin’s volatility is caused by a variety of factors. Understanding these factors can help an investor in picking the right momentum of investment as well as timing, and understanding the movement of the market too. 

According to Nathan Reiff, a cryptocurrency analyst and writer published, “Bitcoin’s price fluctuates because it is influenced by supply and demand, investor and user sentiments, government regulations, and media hype.”

In 2021 media flashed back-to-back headlines which rattled the cryptocurrency market. When the media hyped about the announcement by Tesla that it would not accept Bitcoin as a form of payment, coupled with China’s strict restrictions on banks supporting cryptocurrency transactions, caused the price of cryptocurrencies to crippled.

While an announcement from Elon Musk triggered the rise of the market of Bitcoin, another led to a drip. However, this is only a single instance, and factor, there are other influencing factors behind Bitcoin being volatile. 

The founder and portfolio manager of Quantum Economics, Mati Greenspan, asserts that despite the fact that “massive retracements are always frightening, experienced investors typically view them as buying opportunities”.

Therefore the volatility of Bitcoin is a key behind great Crypto investment success stories too. 

Key Factors Influencing Market Volatility of Bitcoin

Let us see key factors influencing the Bitcoin price:

Bitcoin Supply and Popularity

It is a common law of economics that supply and demand influence the price of any commodity, and in the case of Bitcoin, it is true.

Unlike altcoins, Bitcoin has a limited supply of 21 million, which means that the supply cannot exceed this limit. Therefore, as the final line is getting closer, so the experts are also expecting a higher market value of Bitcoin. 

Bitcoin Investor Approach 

As mentioned owing to the limited supply of Bitcoin the demand is higher compared to any other cryptocurrency.

Besides, giant holders and investors of Bitcoin hold on to their assets which in a way restricts those with lesser assets to come to exposure in the market.

According to a figure on Bitcoin investors released by the National Bureau of Economic Research, the top 10,000 investors globally will hold almost one-third of all Bitcoins on the market by the year 2020.

It is however still a wonder how the Bitcoin investor whales plan to liquidate their huge Bitcoin holdings into fiat currency.

If these whales who have millions of holding start liquidating their currency the market nosedive to crash suddenly.

However, there are barriers to such situations too, since most exchanges have a definite limit of liquidation by a single investor in one day. This would automatically prevent huge Bitcoin holders from liquidating more than a definite amount in a day. 

Bitcoin in the Media

Business institutes to investors making new drives in Bitcoin investment or announcing commercial investment in Bitcoin hit the media and flashed news.

As was already mentioned, negative news flashes contribute to the decline of the Bitcoin market, but new companies that accept Bitcoins in exchange for goods or services show greater market acceptance and entice new investors. 

The announcement of Proshare’s Bitcoin Strategy ETF’s launch was widely covered in the media back in 2021, which caused a rapid increase in the price of bitcoin.

Investors immediately showed keen interest in getting exposure to a cryptocurrency that was approved and available on an official exchange, and the rest remains history as Bitcoin hit its all-time high of more than $69,000.

Bitcoin Regulation

Governmental regulations and legal acceptance of Bitcoin transactions play a huge role in the movement of the Bitcoin price.

While El Salvador was the first to legally accept Bitcoin, the acceptance of Bitcoin as a convertible virtual currency by the Internal Revenue Service (IRS) created great market hype. 

Well if you too seek exposure in the cryptocurrency market, investing small in Bitcoin can be fruitful. While you can easily start investing at bitcoin-code.it, it is indeed advisable to keep your investment to 5% of your financial portfolio and plan for the long term to fetch optimum benefits.

Related Articles:

  1. Beware of these 8 cryptocurrency scams