Why Is Bitcoin Profitable But Highly Volatile?

Ever since Bitcoin has taken the world by storm, we have seen many new investors. When previously people did not actively engage in trading, these days Blockchain technology has become a household topic. From young teenagers to established professionals, everyone wants a piece of bitcoin. However, with so many investors we can imagine the reaction of the market. Similar to the functions of the stock the bitcoin valuation also moves up and down based on the trading value. However, where the stock markets have several regulations in place the crypto trading market is unregulated. This lack of regulation has caused the reputation of trading bitcoins to be very volatile. Till 2018 the value of bitcoins was some few thousand dollars now one bitcoin has a valuation of some forty thousand dollars and is only increasing. While the market has been volatile since its inception over the course of the last few years the volatility has only increased. Here are some major reasons for the volatility of the market. 

Still a new market 

Bitcoins have been around for a while now however the trading market is still an emerging one. It states that there are still few players in the market. It allows such people to hold more power in the market. Most traders are holding a good percentage of the bitcoins. Therefore, if they decide to sell only bitcoins it can be big enough to cause the entire cryptocurrency market to crash. Many such idiocies are negatively influencing the market. For example, tesla until recently accepted payments in form of bitcoins, however, when news broke out that they would no longer accept bitcoins the market experienced a significant downfall. In addition to this, when Elon Musk, CEO of Tesla, tweeted “dogecoin”, the value of dogecoin increased significantly. 

High speculation 

The majority of crypto trading relies on speculation. There is only high speculation as it is void of other rules and regulations. Investors actively bet on their speculation and make profits. This has led to a high volatility rate of bitcoins. This also leaves the power in the hands of big players to influence the market. 

Demand and supply 

The way bitcoins work is that you can either mine them or earn them in exchange for some good or service. While the majority of people holding bitcoins have mined them the trading markets have also made people owners of bitcoins. Given this constraint, there is an obvious shortage of supply and high demand. This has also resulted in high volatility of the markets. However, even if there is one hint of reduced demand as seen in the Tesla example, it can cause the prices to go down drastically. 

Asset class and controlling agency 

While bitcoins have made several people billionaires overnight they are still not recognized as a valid asset class. Hence, we can understand how this might affect the trading market. Since there is no recognition from the government people engage in insider trading which can cause significant changes in the market by the minute. This coupled with the lack of a controlling agency shall result in a market-driven by the biggest holders. Thereby adding to the volatility. It can be very difficult for new investors to navigate through such a situation. Using a trading platform such as Bitcoin Era will help you easily navigate the market ideocracies. 

Investors 

The main investors in the crypto markets are individual investors. Institutional investors see no intrinsic value in bitcoins and therefore stay away. While there are many benefits to having individual investors, with institutional investors you will more likely see a coherent investing strategy. Individual investors are often fragile and are sacred to the market and therefore, are looking to make quick profits by trading everyday. Hence, this has added to the volatility of the bitcoins greatly. 

Therefore, as you can see these are some of the important reasons why there is such a high volatility rate of bitcoins. We also find many investors holding on to large quantities of already reduced supply. The volatility is also greatly dependent on government regulations. When the Chinese government introduced new laws we could see an effect on the market. This all bundles up and leads to a catastrophic crash of the market.