Why does the price of Bitcoin fluctuate?
Why does the price of Bitcoin fluctuate? Investors want stability
Why does the price of Bitcoin fluctuate – Since the Bitcoin cryptocurrency came into existence, many people have enjoyed the opportunity to earn money without much effort. They did this by buying into the currency, for example, or by participating in the Bitcoin manufacturing process. Profits from adding value to the Bitcoin price are highly lucrative and require little effort.
However, like a stock, the Bitcoin price is volatile. This volatility, unlike traditional investment products, is extremely high. One speaks of a gigantic volatility that makes investors regularly break into a sweat. Panic sales, in which investors sell their Bitcoins, fearing that they will lose everything when the price drops again, are not uncommon.
Security-conscious investors, particularly, want stability and steady development. However, this cannot be guaranteed with Bitcoin. If you check the highs and lows of the price, you find that it fluctuates extremely, even on a daily basis.
Many observers, therefore, ask themselves: “Why does Bitcoin fluctuate so much?” For most private investors, the reasons are unclear. They are helplessly exposed to the price fluctuations and simply hope that it will end well.
Why does the price of Bitcoin fluctuate? Influences
The value of Bitcoin is determined solely by market demand. Consequently, it is logical that when demand diminishes, the price goes down. If the demand for Bitcoins increases, the value climbs back up. However, cash out strategies also have an influence on the value.
This is when investors sell their Bitcoins on a large scale in order to redeem the value gain in fiat money (for example, before Christmas or at the end of the financial year).
Much more important, however, are political and economic developments that have a profound influence on the value of Bitcoin. Ultimately, Bitcoin is an asset, of which the increase or loss in value can always be explained by economic psychology.
The mechanism is always the same: if there is a message threatening the price, investors around the globe will panic. Demand falls, and so does the price.
An illustrative example of this is news concerning the regulation, sanctioning or prohibition of Bitcoin trading. Through the Internet, information reaches a large part of the circle of investors in no time at all, and there is an immediate reaction.
Technical issues (such as congestion) that appear in many online exchanges can also cause the price to fall. Users become doubtful and begin to distrust the cryptocurrency or market. In contrast, positive messages may cause Bitcoin to rise in value as people are keen to buy more again.
Why does the price of Bitcoin fluctuate? The benefits of fluctuations
Many find the extraordinary volatility of Bitcoin problematic. It can give you a headache or sleepless nights, as you constantly scour the Internet for expert opinions. However, price fluctuations per se need not be negative. If you act with skill, you can profit from just these fluctuations.
This is because every price correction brings with it the chance to buy cheap Bitcoins. These Bitcoins should be kept until the price rises again. Anyone who subsequently sells at an opportune time can enjoy a nice increase in value and thus net profit.
In the USA, you now have the opportunity to bet on the progress of the price. No Bitcoins need to be purchased for this – you merely bet on whether the price rises or falls, so you can earn money even with a rapid drop in price.
Those who avoid such speculation understandably refer to investments in Bitcoin as “gambling”.
A downward spike is often referred to by devotees of the cryptocurrency as a “price correction”, which implies that it will soon be heading upward again. No one can predict with any certainty exactly how the price will progress in the future and whether it will actually fall or rise.
Conclusion: why does the price of Bitcoin fluctuate?
The Bitcoin price fluctuates because its value is determined solely by supply and demand in the market. There is no bank or central authority that can control performance through regulation or control. It is precisely this lack of control that causes many investors a great deal of stress.
Negative news, technical difficulties or cash outs can trigger a big price drop. However, that this does not necessarily have to be devastating is shown by successful stock market traders – they buy Bitcoins at a low value and hold them until the price correction is over. This way, you can make money even in bad times with the world's most volatile cryptocurrency.