Why Is Bitcoin Price So Volatile and Will It Ever Be Stable?

Bitcoin

A look at the numerous factors influencing Bitcoin prices and what experts have to say about the token’s stability. 

It has been 13 years since the cryptocurrency token Bitcoin was introduced to the world, and it is as volatile as ever. Last year alone, Bitcoin saw tremendous losses that its price plunged 30 percent at one point, along with incredible gains reaching up to 60 percent. The coin reached an all-time high of US$68,000 in November 2021, but its price fell to US$33,000 come January 27, 2022. 

Over the last year, Bitcoin has entered the mainstream, with El Salvador accepting it as an official currency and other countries attempting to incorporate it into their primary financial system. Still, its price continues to fluctuate, and there are, largely, five reasons why:

Government regulations

In October 2021, when China deemed all crypto transactions illegal, the price of Bitcoin fell by 8 percent. When El Salvador announced that it would be adopting Bitcoin as legal tender, the crypto token’s price dropped by 17 percent. In the United States, the CEO and Chairman of blockchain startup, Charlie Silver, says, “The anticipation of Fed (Federal Reserve System) and White House moves, unfortunately, weigh heavily on the market.” All in all, how governments deal with cryptocurrencies severely impacts their prices. 

Dubious classification and regulation

Regulation, or its lack thereof, plays a crucial role in determining Bitcoin prices. The Chief Executive and co-Founder of crypto platform FRNT Financial, Stéphane Ouellette, feels that trying to comprehend Bitcoin’s price fluctuations is an “uncertain exercise”. According to him, that’s because “the market is still deciding whether [Bitcoin] is going to be an alternate financial system or if it’s some kind of a scam.” 

There is a lack of clarity on the classification of cryptocurrency across countries. Given that, there is a demand for regulatory clarity. The Managing Director of trading firm Radkl, Jim Greco, expounds, “There’s still a ton of uncertainty about the future—[cryptocurrency]’s gone so mainstream that we know it has value, but what that value is, I think, is still very much up for debate.”

Supply, demand and their interplay

Bitcoin tokens boast a limited supply of only 21 million coins. As of January 27, 2022, only 10% of these tokens are left to be issued. As we get closer to mining the whole of the 21 million, the price will climb higher, as ‌demand will increase inversely to ‌supply. Later, however, if ‌demand for Bitcoins drops due to the lack of utility, the token’s value will, too. 

In addition to that, once the supply runs out, there will be no real profit from mining as all the coins will have been issued. That’s why everyone will have to compete for ownership, during which the price will fluctuate depending on people’s reactions. 

Investor behavior

Whales are entities that hold significant amounts of a cryptocurrency—enough to cause fluctuations in the token’s value. A single whale, in 2017, had managed to boost the price of Bitcoin to US$20,000 per token. Whales can manipulate Bitcoin prices by placing large buy and sell orders, thus causing the price to rise and fall as per their requirements. The behavior of these whales influences other investors to follow suit, thus impacting Bitcoin’s price. A news report by OKEx sums it up best, “Ultimately, [whales] seek to drive the market, shake out retail traders in panic and capitalize on opportunities to buy relatively cheap coins. For retail traders, and everyone else in between, the choice seems to be between two options: swimming with the tide or against it.”

News and influencers

In February 2021, Tesla CEO, Elon Musk, announced that Tesla had bought over US$1 billion of Bitcoin, thus shooting up the token’s price by 20 percent in a single day. Then, in May, he declared that Tesla would no longer accept Bitcoin payments owing to the coin’s heavy energy consumption, causing the price to fall by 15 percent. The Director of Data And Indexes at a crypto news site, Galen Moore, mentioned, “In cryptocurrencies, it’s as important to understand memes and the social layer as it is to understand the technology and game theory that make Bitcoin a secure network.” He feels that this also raises “uncomfortable questions about price manipulation” in Bitcoin. 

Will Bitcoin ever be stable?

The responses are mixed. Some, like the Former Director Of Research for Fidelity Digital Assets, Ria Bhutoria, feel that Bitcoin’s volatility is a “trade-off for a distortion-free market”. In fact, as per the Portfolio Manager and Founder of Quantum Economics, Mati Greenspan,  volatility is good because it represents lucrative “buying opportunities” for seasoned investors. However, Bhutoria does believe that as Bitcoin’s adoption increases, along with “the development of derivatives and investment products”, the token will stabilize. 

Still, when investing in Bitcoin, experts suggest using less than 5 percent of your total portfolio for high-risk investments, including cryptocurrency, specialized exchange-traded funds (ETFs) and the like. 

Header Image by Pexels

SHARE THIS STORY

Share on facebook
Share on twitter
Share on linkedin
Share on email

RELATED POSTS

GuideGeek Expands to Facebook Messenger to Offer Personalized Travel Tips

GuideGeek, Matador Network’s AI travel assistant powered by OpenAI, is now accessible to Facebook Messenger users, expanding its reach beyond WhatsApp and Instagram. This move aims to place GuideGeek in the hands of more travelers globally, offering instant, personalized travel tips at no cost.

Elon Musk’s Neuralink Debuts Brain Chip Implant: A Bold Future with Ethical Questions

Elon Musk’s Neuralink is back in the spotlight with a major update: they’ve put a brain chip, called the Link, into a human for the first time. This small device has set its sights on monumental goals, such as helping people who’ve lost their limb functionality. Musk’s big dream doesn’t stop there—he wants the chip to boost our brains, improve our memory and eventually blend the human mind with artificial intelligence (AI).

Mercedes-Benz Launches the New Luxurious CLE Cabriolet

Mercedes-Benz has launched the CLE Cabriolet, building on its heritage of creating four-seater convertible vehicles. This new addition is characterized by its expressive design, advanced technology, and high-quality features, ensuring an enhanced driving experience. The model, which evolves from the CLE Coupé, stands out with its traditional fabric acoustic soft top and distinct high-quality details, making it uniquely positioned in the market. Designed to offer dynamic performance alongside exceptional daily comfort, the CLE Cabriolet supports year-round open-air enjoyment.

4 Companies Reusing Coffee Husk for Eco-Friendly Innovations

A daily cup of coffee is more than just a morning ritual—it’s a powerhouse of energy and health benefits. Beyond keeping you alert, coffee supports brain health, maintains liver function and may even lower the risk of depression. However, the journey of coffee from plantation to mug involves an energy-intensive process that produces significant waste, particularly coffee husks.

Fort Worth Hosts New LG Electronics Facility for EV Charger Assembly

LG Electronics has initiated its first U.S. production facility for electric vehicle (EV) charging stations in Fort Worth, Texas, aiming to bolster the national EV charging infrastructure and generate employment opportunities. The facility’s inauguration was marked by an event attended by Fort Worth Mayor Mattie Parker and LG executives Alec Jang, H.K. Suh and Nicolas Min. This development is part of LG’s strategy to expand its presence in the EV charger market by providing high-quality charging solutions and services.