Bitcoin and Cryptocurrency market, ever since it’s inception in 2009, has created and destroyed fortunes & even lives of many early adopters. When dealing with such a uncertain entity that is considered as “fraud” by many and “fortune” by others, there are obvious reasons to be worried about such a volatile market and thus the Bitcoin Price.
Bitcoins and other cryptocurrencies are used by many people around the globe, and no one can say that s/he has been free of all burden that it offers. Its a fact for everyone who uses Bitcoin and any other cryptocurrencies goes through the doubts and concerns.
However lets keep aside the stress and calm yourself by knowing the cause of the volatility. This is why we have brought to you the reasons as to why it happens so that you can stop stressing about bitcoin, or any other cryptocurrency market for the matter.
1. Future of Bitcoin Price is Uncertain
Its difficult to have any form of certainty around the value of BitCoin. It means no one can predict their specific future value. The volatility of bitcoin is also dependent on varied perceptions of the cryptocurrency’s intrinsic value as a store of value and method of value transfer.
A store of value is the function of an asset that can be saved, retrieved, and exchanged later for some services or goods. Thus, the asset can be useful in the future with some predictability. A method of value transfer is any concept or object that is utilized to transfer property. This transfer is done in the assets form, from a party to another.
The volatility of bitcoin makes it a somewhat indefinite store of value, but it assures almost seamless value transfer. This makes the value of bitcoin’s swing.
2. Adoption Rate is Negatively Influenced by Bad News
The news, such as the government regulating bitcoin and geopolitical events, puts the bitcoin traders into stress. There has been news in the past decade that has made the investors more cautious and afraid.
Such news includes – the use of bitcoin in drug transactions via Silk Road after which the FBI shutdown the market in October of 2013, in 2014 Mt. Gox cryptocurrency exchange got bankrupted, and in 2017 the bankruptcy of South Korea’s Yapian Youbit cryptocurrency exchange.
The value of bitcoins in relation to the currency came down after these incidents. However, some traders kept an optimistic view and considered it evidence of the maturing market. It was also because the value of bitcoins against the US dollar came back up within a few months after the news events.
3. Vulnerable Security
The instability in the bitcoin market occurs due to security vulnerabilities. The developers reveal the security problems and their solutions to the public. These open-source responses can be helpful in attaining a favourable outcome for the company.
The cryptocurrencies are vulnerable to hackers, and there have been various such incidents to support this claim. The Yapian Youbit was hacked, and there was another such case of OpenSSL that was attacked by Heartbleed bug in 2014. The latter affected bitcoin’s value by negative 10% in four weeks.
A copy of the source code is available to the traders. They can examine it, and the victim community is responsible for all the modifications and concerns regarding the issues and fixes of the software.
4. Price Manipulation
The fact that the bitcoin market has been manipulated is no secret affair. Due to complexity, cryptocurrencies can not be regulated by the government, and their price is prone to manipulation. The value manipulation is done by vested interests, who also get the most benefit out of it.
The bitcoin users are also trapped by price reversing; the two such traps are called bull trap and bear trap. Bull trap catches the investor by indicating price reversal upwards, whereas the bear trap seems to indicate price reversal downwards. The manipulations such as these fool the traders and make the market volatile.
5. Cryptocurrency Bubble
In 2018, Economist Nouriel Roubini declared that cryptocurrency is the “Mother of all Bubbles“, and the biggest bubble in history, which was destined to crash.
The cryptocurrency bubble is made by the investors, and like all bubbles, it bursts too. However, the bursting is not rapid, it takes months to collapse. There are instances when it seems like the price will go back up, but they are nothing more than just ‘false bottoms’.
6. Relatively New Market
The cryptocurrency market is relatively newer than traditional ones. The technology behind the bitcoins is not yet matured and tested by the majority of the public. This makes it unstable, with a high risk of failure. Since the technology is still developing, it is not yet dependable enough.
There can only be guesses about its condition in the future instead of some strong supportive claims. Awareness takes time and the need as well as the demand for cryptocurrency. As the demand grows so will the bitcoin price. When there is a consistent demand the market tend to become more stable.
7. Effects of Low Liquidity
The bitcoin market has lower liquidity than the other established markets. This is because the cryptocurrency market is new, and the traders investing in it are not many. Such a market is prone to volatility as there are various factors and bad actors who can impact it, which can result in the fluctuation of prices more often.
8. Taxation affects the Bitcoin Market
The Internal Revenue Service (IRS) considers bitcoin as an asset for tax. This has both positive and negative effects on the cryptocurrency. On one hand, the recognition of bitcoin as currency helps assign it a value, whereas on the other hand, it makes it more complex for investors.
According to the new tax laws, records of transactions are to be kept by the traders, and this is difficult for them due to the variations in its value.
Thus people avoid adopting cryptocurrency. Another reason for fall in adoption rates is that some strongly believe that the IRS is going to impose stricter laws on bitcoins in the future.
9. Large Currency Holders
The traders who hold a large balance of bitcoin cannot liquidate it into fiat currency without influencing the market. It may not be even possible to liquidate the amount they have, due to 24-hour withdrawal limits. Also, as the market adoption rates are not enough, such holders do not have many options.
10. Fraudulent Claims
One of the important reasons for Bitcoin price to become uncertain is because it has no fundamental value, and that is no news. Still, bad actors and frauds make profits by claiming and promising about the bright future of the cryptocurrency market. Such can be seen in the case of Bitconnect. These claims cause disarray in public, which results in the instability of the cryptocurrency.
No doubt the uncertainty in Bitcoin price will remain for a while. We have already gone through the reasons why. If you are curious about the Bitcoin & Cryptocurrency market and or thinking about future investments then, take your time in acquiring the knowledge and information along with the history of evolution of the market.
Learn the reasons concerning the price along with tips and tricks that could potentially help you save your investments.
Pramod Dhakal is a Tech entrepreneur at heart, a natural leader, an Agile practitioner, and a Digital Transformation provoker. He has spent over a decade implementing various large-scale transformation initiatives in large multinational organizations. He is an author and contributor at Hitechies largely in the technology space. Pramod is an active investor in cryptocurrencies and he is extremely positive about the future of the decentralized digital economy.