Bitcoin’s high volatility leads to big profits for the investor
Bitcoin has always been a highly volatile commodity. This volatile nature of Bitcoin is seen both as a boon and a bane. The sharp upswings in its market value can bring a sizeable profit for the trader if he has invested when the Bitcoin is at its peak, but at the same time, your entire money can be wiped out in the event of a plunge in its value. This element of volatility excites the trader in the hope of earning a quick buck and deters institutional investors from taking it seriously.
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Bitcoin and volatility
Volatility has been defined as a measure of the frequency in the upward and downward swing in its market price over a time period. As mentioned earlier, it offers more potential for higher gains or higher losses over a short period than other entities with less volatility. It is a known fact that the higher the volatility of an entity, the higher are the risk factors associated with it.
Reasons for Bitcoin’s volatility
Bitcoins are still deemed to be in their nascent stage as all new concepts take time to create an identity for themselves and enjoy the acceptance that the already established elements do; the same holds for Bitcoins. Everyone agrees that the factor primarily responsible for its highly volatile nature is its newness. Let us see how this factor affects Bitcoins and discuss the other factors that cause volatility in this cryptocurrency.
The financial experts, investors, traders, and speculators are still trying to ascertain how Bitcoin works as still there are many grey areas in its concept and way of functioning. Though it may have gained immense popularity among traders and investors in the last few years, this digital asset has yet to accept traditional assets like gold or equity shares. Due to this, it is still in the initial stages of realising its actual worth, or it continues to be in the “price discovery phase”.
Lack of a central authority:
Satoshi Nakamoto introduced this digital currency in 2009 with a dream to promote decentralized transactions through a peer-to-peer exchange of currency. The entire concept and function of Bitcoin trading are based on this basic principle of decentralization, unlike fiat currency, stocks, and bonds that are regulated by a governing agency or a financial institution.
Governments find it difficult to regulate Bitcoin trading due to the absence of any regulatory body, and a government took any adverse action like a ban imposed on Bitcoin trading by China in 2017 resulted in a period when Bitcoin was highly volatile.
A limited number of Bitcoins:
There are only 21 million Bitcoins, and due to this tab on the number of Bitcoins, its value is always high. Due to its limited supply, its price is driven by the laws of demand and supply. Entities owning a major share of Bitcoins can influence the movement in its market value by their collective buying or selling sprees.
Role of media and social media:
The media give extensive coverage to Bitcoin. A lot of speculation on the current trends of Bitcoin trading is based on these reports. The news of a global conglomerate or a major banking institution supporting or investing in Bitcoins swings the trend upwards. Elon Musk tweets for Bitcoins zoomed its price through the roof, and later his support for Dogecoin slumped the Bitcoin market.
Is Bitcoin trading profitable?
Volatility in Bitcoins can swing the fortunes of an investor, either way, huge gains or severe loss. Your knowledge and understanding of the crypto market and the conditions that create fluctuations can help you make a sizeable profit. Also, if you find a mentor with effective trading strategies, Bitcoin trading can be the most profitable venture. Various online platforms and trading apps are helping investors to make profitable investments with their inputs. TOP 5 Crypto Bot Trading is one such app that has earned the trust of crypto traders with its accurate predictions based on its algorithms.
Making profits through Bitcoin trading is a possibility. Your knowledge, insight, and understanding can help you earn huge profits. But due to its unpredictability, all precautions must be taken before investing. With due diligence and a bit of research, you can gain huge profits in the crypto trading.