Bitcoin is a decentralized cryptocurrency notable for its volatile nature. Bitcoin’s volatility does not occur in isolation, as it solely determines the market value of other cryptocurrencies. This is because a preponderance of cryptocurrencies is impacted by Bitcoin’s fluctuating prices.
A good understanding of the determining factors of Bitcoin volatility would help to better gauge the developments and tendencies in the crypto market. Here are some key drivers of Bitcoin volatility in the crypto space.
1. Supply And Demand
For a better understanding of the Bitcoin supply formula, let’s be reminded that Bitcoin’s total asset is finite, with 90% of the digital asset being mined already. Bitcoin price decreases with increased assets. This follows a Bitcoin asset that is limited with a direct impact on its price. However, there can be more of the digital asset if more of it is mined by solving complex mathematical problems.
In the aspect of demand, it has a greater impact on Bitcoin volatility than supply. The price of Bitcoin increases with the increasing demand for the asset from investors competing to own the cryptocurrency. Demand for Bitcoin has the potential to rise with time, even amid its hiccups.
2. Changes In Government Policy
Government policies and regulations have a direct toll on Bitcoin prices. the highlight is the stringent sanctions and measures being meted out and which has hurt Bitcoin price. Bitcoin ban in some countries has made Bitcoin price feel the brunt of volatility. One major example is the crackdown on Bitcoin by the Chinese government, where Bitcoin mining and Bitcoin-related transactions are prohibited in the Asian country.
3. Investment Attractiveness
Attractiveness is a more important factor in earning the interest of investors than supply and demand. With the tools of media influence and political changes, attractiveness plays a pivotal role in the good reputation and investment appeal of Bitcoin.
In the area of media influence, positive news in the light of Bitcoin helps the cryptocurrency to gain more potential investors, while the consumer base of Bitcoin increases. Also, political instability and economic crises often lead to the masses making Bitcoin investment their last resort.
Heavy dependence on cryptocurrencies like Bitcoin is due to its bankless transaction feature and prospects for future investment. Countries like Nigeria, Kenya, Afghanistan, Argentina, and Vietnam are countries where there is a boom in the use of cryptocurrency for sending diaspora remittances and solving economic distresses.
4. Adaptability Of Bitcoin Users To New Updates
The popularity of Bitcoin is a function of the ease and adaptability of the Bitcoin community to its new updates, therefore, increasing Bitcoin price. A hard fork can be formed from the volition of Bitcoin users who has the prerogative to update to the new version of not. A consequence of such a decision (hard fork) is the Bitcoin Cash created in 2017.
Bitcoin sits as the most expensive and popular cryptocurrency in the world, even as it faces a ban from some countries, but it is important to invest in it with the money you can afford to lose. A wise investment is advisable.