Bitcoin Volatility – What is Volatility?
If private investors want to invest in the cryptocurrency Bitcoin, they are often warned of high Bitcoin volatility. Anyone who does not come from the financial sector and does not know the term in a financial context may be confused about what exactly it means. The media also speaks of volatility in connection with Bitcoin and present it as a risk factor in trading.
Volatility is the technical term for price fluctuations. More specifically, volatility refers to the degree of price deviation. As is well known, the Bitcoin price fluctuates daily – its volatility is extremely high. For many economists, extreme volatility is the main reason for opposing a Bitcoin investment. The course is unpredictable and so volatile that it is not for the faint of heart.
In fact, the price fluctuates not only daily but also over the months. In the past, this has caused some investors to panic – they underestimated the volatility of the cryptocurrency.
Bitcoin Volatility – What Causes Volatility?
Since the value of Bitcoin is determined solely by supply and demand, the price is always subject to fluctuations. These are particularly strong when negative news reaches the public. For example, news of a possible Bitcoin exchange ban in China caused the price to fall significantly.
Not only drastic events but also normal daily courses of events can result in fluctuations. These can be worth between several thousand euros per day and are related to times of day and stock market activities. On a normal trading day, volatility levels of up to 30 percent are nothing out of the ordinary – a nightmare for every investor!
Many also see extreme volatility as an argument that speaks against Bitcoin as a possible key currency or new world currency.
The volatility of Bitcoin, however, also includes uptrends, and there have been enough of these in the past to make it a worthwhile investment for many. If the price rises continuously over a longer period of time, many private investors are tempted to jump on the bandwagon. There are new investments that will cause the price to rise even further if made on a large scale. For example, large corporations have the power to influence the volatility of Bitcoin. Allegedly, much of the market capitalization of Bitcoin is in the hands of financial giants, who own 90 percent of all Bitcoins.
Bitcoin Volatility – What is the Best Way to Deal with Bitcoin Volatility?
The fact is, Bitcoin has a volatility that is extreme and unpredictable. Anyone who fears this aspect should stay away from the Bitcoin market and cryptocurrencies as a whole. If you have already invested, you just have to deal with it.
If it’s a long-term investment, it’s important to just hold the Bitcoins without checking the price every day. A relaxed attitude and the perspective of longevity help – it does not make any sense to go crazy when the course falls again.
The biggest mistake that can be made in the presence of Bitcoin volatility is to panic and sell stock. The alleged damage limitation only causes investors to exchange Bitcoins at an extremely bad euro rate and thus, lose their entire Bitcoin stock.
Even though the recommended course is long, it is important to be patient – every course correction is usually followed by a new high. Of course, market observation cannot hurt, but a healthy distance to the daily review of values should be maintained.
If you want to use the volatility in a positive way, you can go into trading or “gambling” – there are now many lucrative opportunities in the market. Volatility is not bad in itself and is part of the nature of things. Patience or dexterity is the best way to handle it. There is no reason to be deterred from a Bitcoin purchase.
Bitcoin Volatility – Conclusion
Volatility refers to the fluctuation of a value in the financial market. The Bitcoin cryptocurrency is subject to extremely high volatility because it is not regulated. Its value is determined by market supply and demand. For many, this is a point that goes against buying Bitcoins. The price fluctuates not only over the course of the coming months but also on a day-to-day basis.
If you see your investment over the long term, you should remain calm. In the past, it has been shown that the Bitcoin course climbed back up after each crash. It is best to keep up-to-date but to refrain from checking the value daily.
However, profit can be derived from volatility by relying on a fall or rise in the price. Thus, Bitcoin volatility is ultimately an annoying evil that can still be cleverly used by investors.
Alexander Weipprecht is the managing partner of Provimedia GmbH. As a trained IT specialist for application development, he has been advising leading companies on the following topics for more than 10 years: online marketing, SEO and software. Cryptocurrency is becoming increasingly important to businesses and investors. Through Coin Report and Krypto Magazin Germany, Alexander wants to give all people easy access to the subject matter.