In the calendar year 2017, Bitcoin prices rose from below $ 1000 all the way above $ 19,000. Since then, they have dropped to as low as $ 10,000 and currently trading around $ 12,000. If you compare this with the prize of any other financial asset, you would realize that this constitutes high volatility. Similarly, when you take into account the other cryptocurrencies as well like Ethereum, ripple, you would realize that they have also been equally volatile if not more.
For any new investor in cryptocurrencies, this can actually be a pretty horrifying experience. We would today delve into the reason why Bitcoin prices vary so widely.
One of the main reasons why the volatility in Bitcoin prices is so immense is because it is comparatively newer and different as compared to the other assets. It was launched in 2009. In 2017, it gained mainstream popularity due to which, the prize of Bitcoin rose significantly. According to a report, 95% of the Bitcoins are actually owned by just 4% of the people. This essentially means that a small number of people can easily flood the market with Bitcoins.
Also, Bitcoin is susceptible to news flow from various countries as well. When it was announced that one of the biggest banks in South Korea was testing the blockchain technology, it led to a spike in value. Similarly, when there was an announcement from China that there would be a crackdown on ICOs being launched, the value of Bitcoin actually dropped.
As a result, the news flow surrounding Bitcoin is immense and this is another reason why it going is so volatile.
Bitcoin is based on the blockchain technology. None of the other assets which have been privately launched are based on the Bitcoin technology. Therefore, it is quite different as compared to any other asset which has been launched.
Moreover, Bitcoin can be mined by individual investors which make it easier for them to participate in the Bitcoin readily. In addition to that, since it is based on blockchain technology, the transactions are relatively simpler and quicker. Owing to this very reason any reaction to any news is pretty quick as well. This is another reason why Bitcoin is so volatile.
Bitcoin also trades around the clock. The other assets do not trade round the clock.
Owing to all of these reasons combined, Bitcoin is much more volatile as compared to some of the other assets in which you can invest.