Bitcoin prices are known to be volatile. In recent years, we have seen great movements (both up and down) in the span of several days, hours and even minutes. What causes this? Why is the price of Bitcoin very volatile?
We know that the more volatile the price of an investment, the greater the risk you take if you decide to make an investment (and actually, the higher the profit potential you get).
This principle also applies to Bitcoin.
With time, we can see Bitcoin prices no longer fluctuate as much as before. Daily volatility (changes in prices per day) averages less than 5% since 2015.
The Bitcoin market still tends to be small, so this number is a reasonable number, and not too different from gold and most other major currencies (which actually have a much larger and more stable market).
Let's discuss more deeply the factors that contribute to this price movement:
1. Bitcoin is still a new technology
Bitcoin is still relatively young, created in 2009.
On the other hand, the internet was created in the 1960s, space exploration has existed since 1957 and artificial intelligence (artificial intelligence) has existed since 1956. New technology takes time to develop and find its place in everyday human life.
New technology will go through the hype cycle.
Initially, only a few people knew or used it. Then, the technology will slowly be recognized by the general public and suddenly, everyone will talk about the technology. Strange opinions will emerge, exaggerating statements will circulate and the level of "hype" will become increasingly craze.
Then reality will ease the hype. But behind the scenes, the technology continues to grow and become a productive part of our lives.
Unlike other new technologies, we can see a general sign that is clear that Bitcoin is on the hype cycle, namely through its price. Although the cycle looks normal, but the fluctuations in Bitcoin prices further clarify this hype cycle. Bitcoin is a technology and also a new form of investment. Investing in Bitcoin is a positive recognition of its technological potential.
Bitcoin is still in the cycle while we continue to find out its purpose and how Bitcoin can add value to the lives of all of us. Whatever is seen on the price chart, companies like Luno will continue to work behind the scenes to help adopt Bitcoin and ensure that Bitcoin will remain useful in the long run.
2. Previous Bitcoin is not currently liquid
There are only 21 million Bitcoin available and not all have been mined.
Many of the existing Bitcoin are owned by a few people. An estimated 4% has 95% of the current Bitcoin. In addition, 1% of the owners of existing Bitcoin addresses control half of the Bitcoin market itself. As a result, Bitcoin liquidity is limited.
Liquidity indicates how easily you can buy or sell something, without changing the price.
When liquidity is not enough, this means that only a few people are willing to sell or buy. This is what happened with crypto currencies in the past.
Many of the biggest Bitcoin owners don't want to sell their Bitcoin whatever the circumstances. So if someone tries to buy a lot of Bitcoin at once, there isn't enough Bitcoin available. This makes prices pushed up until there are more people who want to sell their Bitcoin.
Conversely, if many people decide to sell their Bitcoin at the same time, there is a possibility there are not enough buyers. Then prices will fall until this lower price attracts more buyers.
And now, this is starting to change. More people are buying and selling Bitcoin, so now there is more liquidity on the market. This helps flatten prices back.
3. Investing can affect emotions
Many suggest that 'emotion' should not be involved when you invest. However, this is not always the case.
When the price is Bitc
When Bitcoin prices fall, investors tend to experience what is commonly known as FUD: fear, uncertainty and doubt (fear, uncertainty and doubt).
They fear prices will continue to fall. They feel uncertainty that the price can rise again. They doubt whether their decision to invest is true. Then, they will sell their Bitcoin. Often, this is not due to changes in the real value of Bitcoin, but only because of someone's rumors or randomness. Price changes are normal in any market.
Similarly, when Bitcoin prices increase, people will experience FOMO: fear of missing out (fear of being left behind). They are afraid to miss the opportunity to become rich and they hope prices will continue to increase, so they start buying Bitcoin, increasing demand and prices. This increases the natural fluctuations of Bitcoin.
One way to understand it is to imagine you are buying a new laptop. You have long been eyeing a laptop for Rp10 million, hoping that the price of the laptop will go down.
If the price drops to IDR 6 million, you will immediately buy it. However, it is different from investment. Our fear of being left behind (FOMO) might make us buy a laptop when the price is more expensive because we think that we can sell it at a more expensive price. Our FUD can make us sell the laptop when the price is lower because we think that the price will be lower.
4. Bitcoin prices are very easily influenced by news
Buy the rumor, sell the news.
Just like investing in traditional stocks, or foreign currencies, the price of Bitcoin can be influenced by news circulating.
General news materials that can affect prices include:
Regulatory news or new actions from banks and government (for example, SEC decision on ETFs, banning Bitcoin in China)
Statement from leading figures in technology and investment (for example, Jamie Dimon, John McAfee)
News of hacking or security breaches
Rumors and misinformation
These things are just a few factors that influence cryptocurrency price movements such as Bitcoin. Before making any investment decisions, it is important to understand what investments you will make.
Prices can change at any time so that your investment value will change from time to time, perhaps with a large difference. Don't let emotions control you. Research and consult with financial experts can help you make better decisions.
If you want to monitor the price of Bitcoin or Ethereum, you can easily activate the price notification in the Luno application. Just open the menu next to the application, click "PRICE NOTIFICATION" and decide when you want to be sent a notification.
