Bitcoin (BTC) is one of the most popular investments over the past few years, with investors drawn in by surging prices and the hope of making big money. Since it launched in 2009, this digital currency has gone from being worth a few cents to tens of thousands of dollars. India has the highest number of cryptocurrency users in the world, with an estimated 97.5 million people using some form of crypto such as Bitcoin.
While cryptocurrency has experienced a lot of growth in terms of price and popularity, it’s also plagued by constant controversies and crashes. The price of BTC is impossible to predict, even for those who have studied it for years. This makes it something of a risky investment, with no one quite sure how long the next pump will last and whether there’s another crash around the corner.
What is Price Volatility?
Price volatility is a term used to describe how the value of a commodity changes over time. It’s normal for prices to fluctuate, but highly volatile markets experience much larger fluctuations in a shorter space of time. Volatility can put off investors, especially if there are frequent price crashes. However, they can also be a great opportunity for traders and investors who don’t mind taking on extra risk.
Bitcoin is described as a volatile asset due to the regular changes in its price. Over a few years, its price increased by a massive amount, but this was interspersed by lots of big crashes. Those who are looking to invest in a volatile commodity need to be prepared for big fluctuations, and staying strong through crashes can result in much higher yields over time.
The volatility of Bitcoin can be blamed on a number of different factors, including the immaturity of the market and the fact that it’s a speculative asset. Most investors are investing in Bitcoin because they believe the price will increase rather than because they have a use for the coin. Therefore, they’re more likely to sell as soon as the price starts dipping.
Will Bitcoin Prices Ever Stabilise?
While being a speculative asset is one reason for Bitcoin’s price being so volatile, the actions of governments and news stories from the media also have a big impact on its value. Increased regulation or news stories about potential bans have often been blamed on cryptocurrency market crashes, and regulation is generally seen as a bad thing by Bitcoin investors.
However, there are others within the cryptocurrency community who feel that better regulation could help Bitcoin prices stabilise. While this might not be the best news for traders who profit of volatility, greater stability would naturally attract more investment from being who are more risk averse.
Greater investment in Bitcoin and the cryptocurrency market would also help it mature, with better liquidity helping to prevent flash crashes and similar instances that lead to volatility. In addition, it will help people use Bitcoin for its actual purpose of sending money online. This will reduce its status as a speculative asset and help make it more resistant to volatility.
As time goes by and more people get into Bitcoin, there’s little doubt that price drops and rises will calm over time. While this might push away some investors who are interested in speculation, it will help to increase interest from institutional investors and those who are more concerned about long-term risk.
Recent news has shown that financial institutions have a lot of interest in cryptocurrency, with the approval of the Blackrock BTC ETF. In future, we could see more instances of Bitcoin being traded over traditional financial markets and being offered to a wider range of people than ever before.