Following a long rise in value that left investors feeling confident, the cryptocurrency market caused panic with a sharp drop in early 2018. This is far from unusual. On a daily basis, Bitcoin pricing can fluctuate to five or even ten percent. Critics think that this wild ride makes Bitcoin a poor investment strategy. Others, however, think stability is in Bitcoin’s near future. A variety of factors make Bitcoin and other cryptocurrencies uniquely volatile. Read on to learn more about pricing fluctuations and common causes.
Know The Volatility Of Bitcoin Pricing
Small Share Ownership
Ordinary people may be increasingly interested in altcoin, but a few individuals still control the bulk of available Bitcoins. Just 4 percent of those with Bitcoin control 95 percent of the cryptocurrency’s value. A single Bitcoin enthusiast could spiral the market out of control by releasing large shares at any given moment.
Trading Never Ends
Bitcoin is not like any other financial market. One of the most underappreciated aspects of this is its non-stop nature of trading. With most types of trading, market hours dictate timing. With Bitcoin, however, trading occurs at all times. This leaves little time for stabilization in the aftermath of a major change. On the flip side, never-ending trading means greater convenience. It also allows sellers to take advantage when exchange rates drop immediately.
Volatility and Misunderstanding
Clearly, several factors influence Bitcoin’s volatility. The root of the issue? Cryptocurrency is still quite new. Developed in 2009, it only began to hit headlines a few years ago. Because it’s so new, most people don’t understand its purpose or its value. This lack of understanding prompts instability. Those who eagerly invest because of Bitcoin pricing increase may be the first to ditch it at the first sign of a drop. As outsiders get better acquainted with the concept, they may take a long-term approach to investing. Their increased knowledge may reduce volatility.
Lack of Government Oversight
While a few federal entities have expressed interest in regulating Bitcoin pricing, it remains largely unencumbered by regulation. Proponents see this as advantageous, but lack of regulation can lead to huge spikes and drops in value.
Of course, when the government does get involved, this can also prompt value changes. For example, Bitcoin prices increased when Japan officially recognized it as legal tender. Likewise, prices dropped when China cracked down on some online platforms. In the long-term, however, government oversight is thought to stabilize prices.
Will Bitcoin Ever Become More Stable?
For now, volatility appears to be woven into the fabric of Bitcoin. That could change, however. As the altcoin becomes more popular, it will naturally stabilize. Eventually, a larger share of investors will control a greater portion of the Bitcoin market. When this happens, one person’s decision will be less influential. Government regulation is also likely. While this may prompt a few initial blips in value, it will have a stabilizing effect in the long-term. Regulation would drive out sketchy elements. Additionally, it may reduce speculation.
Ways to Overcome Volatility
For now, there’s no full escape from Bitcoin’s natural volatility. However, it’s possible to cope while making the most of the cryptocurrency market.
Time Orders Carefully
A top solution: watching the altcoin market closely. Whenever small changes signal an upcoming large shift, buy or sell accordingly. This approach works best for knowledgeable investors. Essentially, it involves earning from volatility rather than ducking it.
The Role of Stop Orders
Stop orders prompt purchases or sales when Bitcoin reaches a specific price. This automates the trading process. It’s a nice option for those who do not follow market moves closely, but are not willing to hold investments in fiat. This system allows for modest gains from volatility while hedging against huge losses.
Taking the Long View
Over time, Bitcoin will likely become less volatile. If the aforementioned short-term tactics don’t suit you, take the long view, as you would with most investments. If you purchase Bitcoin at a reasonably low price, you can take advantage of Bitcoin’s generally upward direction. This means avoiding panic when the market drops. Bitcoin should never form the sole basis of retirement savings, but it can complement other investment strategies.
Experts claim that volatility is a symptom of Bitcoin’s youth — not a permanent feature. As it enters the mainstream, expect tampered growth and a gradual setting in of stability. From new regulation to a reduced media frenzy and even public education, several forces will limit price changes.
If enthusiasts are to be believed, Bitcoin has a promising future. Over time, it may stabilize while still enjoying significant growth. Until then, there are plenty of options for hedging against or making the most of current volatility.
Tell us what you think about Bitcoin pricing, regulation, and the concerns over it in the comments section below!