Cryptocurrency is an online currency system and is aptly referred to as digital currency. Since its existence is solely dependent on online crypto exchanges; they have a high vulnerability of being a target of cybercrime or data hack. However, security breaches have been overcome over the years; with exchanges about stringent security technologies, safe payment modules, etc. However, the only thing which still holds back a trader from being in a doubtful state whether to invest in Bitcoin Regulation or not is its inherent volatile nature. Risk is a deterring factor that still poses to be a key challenge that one needs to address. This will eventually attract more investors.
Bitcoin has recorded instances when its extreme volatility has been exhibited since 2009. For example, in 2016, there was a steep rise in the Bitcoin price by 125%, and in the very next year, in 2017, quite unexpectedly; the price triggered at a havoc rate of2,000%. However, until 2021 there were no such sharp hits in Bitcoin market value. However, in 2021, Bitcoin created history with an all-time high; where the digital coin hit a mark of $68,000, almost triple the value it achieved back in 2017.
Why is bitcoin so volatile?
Bitcoin volatility is analyzed and derived from various grounds as per experts. According to some assumptions, a part of it is from its nature of being of utility as a store of value and also because of the process of value transfer. A store of value is referred to any asset whose movement and function allow a certain degree of predictability and value maintaining parameters in the future. Since Bitcoin is steadily taking over the place of asset investment and offering tough competition to stable asset investments like gold or other metals and stones.
Again, one of the most essential factors determining Bitcoin’s value is its availability. Since mining of only 21 million Bitcoins was possible; and already the market has a circulation of 18 million; analysts and experts expect the complete mining will end by 2149. However, since Bitcoins are available on a finite scale; therefore increment in their future expected value is high.
Apart from all these, different governmental and financial regulations had speculations to impact the price of Bitcoin. The opinion that government agencies hold for Bitcoin influences the overall market value of the digital coin in a way. For example, according to the Internal Revenue Service (IRS); Bitcoin is an asset that is, in a way; a convertible virtual currency since one can convert a Bitcoin with fiat currency. Not only by IRS but by different financial bodies across the globe; Bitcoin is a considered capital asset when used as an investment. While this view offers a greater value and stability to Bitcoin; a regulation from China negatively impacted Bitcoin’s value.
In 2021, China’s government and a central bank announced all cryptocurrency trading or mining as illegal and prohibited activity throughout the country. Bitcoin mining suddenly had to a halt after a governmental State Council Financial Stability and Development Committee joint meeting. After the announcement of this regulation in May; there was a steep fall in Bitcoin price in August 2021 to around $29,700 since the decision led to a lot of struggle for miners.
However, despite all the volatility and rumors of the market crash; Bitcoin is still the highest value cryptocurrency. Compared to all altcoins; the highest-rated cryptocurrency is bitcoin even in terms of market demand. Pick any exchange or business that accepts cryptocurrency for payments; Bitcoin is essentially there.
According to CoinShares, cryptocurrencies have a higher growth rate than the internet. While the demand and market adoption rate of digital currencies have accounted for an annual growth rate of 113%; the internet’s annual adoption rate was 63%.
Wrapping it up !!!
Crypto investments are drawing the attention of many companies as well as individuals. Many companies like MicroStrategy, Block, MassMutual, etc; have invested in BTC, and all hold BTC. Revolutionary decisions like the legalization of Bitcoin in El Salvador. Besides, the government of El Salvador also has BTC as part of its national reserves. These decisions from governments and companies also invoke assurance and trust within general investors. You can also start investing in digital Yuan from Yuan Pay Group. I hope you understand why bitcoin is so volatile.