Bitcoins Are Volatile: After launching in 2009, bitcoin has gained huge popularity within a year, and the price of bitcoin is unpredictable. So, it is a highly volatile digital asset that is available online. Investors are still trying to get hold of this digital asset and they are ready to take a risk of loss.
Why investors are taking such risks associated with bitcoin? If you are interested in bitcoin trading, visit immediatebitcoin.org to acquire an utter guide to crypto trading. Before we discuss the reasons for this volatility, you need to know why bitcoin is considered a volatile digital coin. Here you can find some factors that can put your bitcoin investment at risk or you can find the factors that can make you willing to invest in it:
- Before you invest in bitcoin, you must know the number of coins in circulation because bitcoin is capped within a certain number and you cannot buy bitcoin when this number is exceeded. So, if there is a shortage of coins, the price of the coin will be increased, and you need to pay more to buy a coin.
- People tend to mine coins to earn rewards but bitcoin mining is not an easy task. As a miner, you need to invest a lot to set up an infrastructure and you cannot get a reward if you are unable to validate a transaction with bitcoin. Along with that computing and mathematical knowledge are required for bitcoin mining.
- According to a report published by the National Bureau of Economic Research, more than one-third of bitcoins is occupied by the top ten thousand investors. This number will be increased because crypto exchanges are working hard to get approval from the Securities and Exchange Commission, and if they get such approvals then large-scale investors also will invest their funds in bitcoin in the future. So, if these investors start selling their coins then the price of bitcoin will be dropped.
- Knowing the liquidation rate of such exchanges is important because most of the exchanges have a certain limit and investors can liquidate their coins within this limit. For example, investors can liquidate one coin per day and it can keep the coins stable and less volatile.
Most investors think that bitcoin will keep its value and cannot get affected by inflation. It is like metals, and you can consider it digital gold or other expensive metals. If you think that stocks and bonds can give you a secured return then you can face a great loss because the government can control the stock exchanges but they cannot keep your funds safe while you invest in stocks and bonds. They are equally risky and volatile, and you can get a high return by investing your funds in bitcoin rather than stocks and bonds.
The price of bitcoin is influenced by media:
In October 2021, Bitcoin Strategy ETF was introduced by ProShares, and the bitcoin price skyrocketed after this announcement. The price of bitcoin jumped to $69,000. But, it was fake news and when it was cleared as fake news, the price of bitcoin dropped to $50,000. So, media houses including social media campaigns can affect the price of bitcoin and rumors can make it more volatile.
Apart from that, China Government declared it illegal and a large number of bitcoin mining firms were shut down in 2021. After that, the price of bitcoin again dropped to $29,000.
Why would you invest in bitcoin?
It is true that bitcoin is highly volatile, but you can take this risk to get a high return. You must consider it as a commodity like gold and metals, and you must keep your eyes on the recent trends and news about the crypto ecosystem. Do not invest in bitcoin only because your friends do the same, you must know about blockchain technology to make an informed decision.
To keep your funds safe, you must choose a reliable platform where a wallet facility is available. It is a secured and trusted platform used by many investors. Do not invest more than 5% of your total portfolio on crypto assets and you must prepare your exit plan while you enter into this crypto world. To avoid the risk of loss, you can invest a small amount in crypto and you can increase your investment later on.