On December 17, 2017, Bitcoin reached its peak value. On that day, Bitcoin was worth roughly $17.4k.
All the media outlets were writing about the price, initial investors were seemingly getting rich overnight, and some “experts” were predicting that Bitcoin would hit $1 million before the end of the decade.
Exactly a year later, to the day, the price of Bitcoin dropped to $3.800.
Despite some people’s predictions, Bitcoin didn’t actually die after that price drop. It managed to bounce back rather quickly. However, similar price fluctuations continued to happen.
What caused such a drop in price? What caused it to bounce back so quickly? How often do these price drops and ascents occur?
Let’s examine just why Bitcoin is so volatile.
Why is Bitcoin So Volatile?
For starters, you need to be aware that Bitcoin’s volatility won’t go away any time soon.
As many news outlets reported, 2019 was the most volatile year for Bitcoin ever. Experts expect things to stay the same in 2020.
What causes these price movements? As you could expect, there’s a ton of factors at play.
The cryptocurrency market is similar to the stock market in the sense that real-life events often have huge effects on it.
For example, even though it wasn’t launched, Facebook’s proposed cryptocurrency Libra has had a huge effect on Bitcoin’s price.
Even less significant events, such as the US President tweeting can have an effect on Bitcoin.
Yes, the market is unpredictable.
However, these events impact Bitcoin only slightly. Other underlying factors have a larger influence and make Bitcoin so susceptible to various influences in the first place.
What Are the Main Factors That Make Bitcoin Volatile?
We know that there are numerous factors — but are there some main drivers we can pinpoint? Let’s have a look at some of them here below.
1. Market Immaturity
You need to realize that even though 10 years is a long period for an individual, it’s extremely short for a market.
Simply put, the crypto market is still in its infancy.
It has not reached full potential in terms of technology or utility. At the early stages of any market, the public sentiment is what drives the price.
2. Type of Investors
While there are thousands of people calling themselves active Bitcoin investors, the crypto market is mainly inhabited by retail investors.
That is one of the main reasons why there’s so little institutional capital in play.
Most retail investors approach the Bitcoin market as a one-and-done deal. That’s why we don’t see too many hedge and pension funds in the market.
3. Lack of Regulation
The last factor we’re going to discuss won’t come as a surprise to anyone even remotely familiar with the Bitcoin market.
Until a few years ago, there were no security or regulatory measurements in the world of cryptocurrency.
For that reason, some investors were a little reluctant to enter the market. That left the Bitcoin market more prone to sudden changes.
Is Bitcoin’s Volatility A Problem?
One can assume that the market won’t stay as volatile as it is right now, forever.
After all, technological improvements will make transactions quicker and more secure, making the currency more popular and in turn, more stable.
What’s more, with new regulatory measurements across the globe will give new investors the confidence to enter the market.
That will not only make the market larger on a global level but it will make it more stable as well.
But as we mentioned in the opening lines, the Bitcoin market will seemingly stay volatile for the foreseeable future.
Will this present a problem for new investors, unfamiliar with cryptocurrencies?
The answer to this question depends on your perspective.
Bitcoin’s volatility shouldn’t be a huge problem if you take it into account when creating an investment strategy. It opens up new opportunities for both experienced and inexperienced investors.
The fact of the matter is that new investors will have to educate themselves more.
There are investment opportunities across all of the market life cycles. And while the market is still in the development stage, that doesn’t mean it provides any fewer opportunities now when it’s not that stable.
How to Use the Volatility to Your Advantage
Although volatility is not a problem per se, we have to be realistic about it and recognize that it comes with added risk. That means you need to assess your strategy and see how much risk you’re willing to take before you invest
Keep in mind that when you’re dealing with high-risk investments, one bad investment can wipe out months-worth of gains.
1. Margin Trading
Let’s start with the riskiest option you have: margin trading. Too much leverage could potentially get assets liquidated quicker than you realize.
However, since there are millions and millions of dollars at play, margin trading remains quite popular. BitMex has tens of thousands of people trading Bitcoins on the margin daily.
2. Buying Bottoms
HODL stands for “Hold On for Dear Life.” People who use the HODL strategy keep their Bitcoins for long periods of time.
However, people that don’t have the patience for it usually wait for one of their alt-coins’ prices to grow so they can sell it for Bitcoin. That allows them to accumulate more Bitcoins. That said, this strategy also requires some patience and luck.
Dollar-cost averaging is the safest investment option. That’s why it’s so popular among first-time investors and amateurs.
It involves creating a schedule and investing the same amount of money over a set period of time. This type of investment works best in volatile markets such as Bitcoin.
Where Can You Benefit from Bitcoin’s Volatility?
The answer lies in the huge market for Bitcoin trading. Whether you choose to go the route of P2P exchanges or want to stick to the more established Bitcoin exchanges is up to you.
NordikCoin is a great choice whether you’re a beginner or a seasoned trader.
It’s a brand-new Bitcoin exchange based in Europe, and it combines the convenience of an ATM with the security of a bank vault. You can set up an account in a matter of minutes, and then purchase Bitcoin with a regular payment card like VISA or MasterCard.
The security measures have also been designed by a team of experts in both legal matters and cutting-edge technology. The exchange uses a combination of cold storage facilities and multi-signature access control to ensure that your Bitcoins are kept as safe as possible.
In other words, it’s can’t be hacked.
The best part is perhaps the speed at which you can buy and sell Bitcoin. In a market that volatile, the seconds and minutes really make a difference.
When the price could rise or fall lat a moment’s notice, it helps to have a system that lets you react accordingly.
So whether you’re a day trader or HODLer, we suggest you check out NordikCoin.
Many factors affect Bitcoin’s volatility. Liquidity, market size, and maturity all contribute to Bitcoin’s price fluctuations. This can be a bad or a good thing for your investment, depending on your investing strategy.
Every year, thousands of Bitcoin investors benefit from the currency’s volatility. If you’re interested in investing and you want to know how to profit from Bitcoin volatility, make sure to do all of the research needed before getting involved.
Want to know more? NordikCoin has a blog full of educational resources — check it out here.
Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.