Traders are always worried about the volatility of Bitcoin. It is important to know what is causing the value of this particular digital currency to be highly unstable. Like many other things, the value of Bitcoin depends on demand and supply rules. If the demand for "bitcoin" increases, then the price will increase. Conversely, a reduction in demand for "bitcoin" will result in a reduction in demand. In simple terms, the price can be determined by the price agreed to by the marketplace. If a large number of people want to buy "bitcoin," the price will rise. If more people want to sell "bitcoin", then the price will fall.
It is worth mentioning that the value of “bitcoin” may fluctuate compared to more mature commodities and currencies. This fact can be attributed to its relatively small market size, which means that less money can make the price of "bitcoin" change more significantly. As time goes by, with the development of money and the expansion of market size, this contradiction will naturally decrease.
After being ridiculed in the second half of 2016, Bitcoin reached a new record high in the first week of this year. There may be multiple factors that cause "bitcoin" to fluctuate. Some of them are discussed here.
Bad news factor
Most of the "bitcoin" users were intimidated by various news events, including statements by government officials and geopolitical events, that is, "bitcoin" may be regulated. This means that negative or bad news reports are plaguing the adoption rate of “bitcoin”. Different bad news makes investors feel scared and prohibits them from investing in this digital currency. An example of headlines is the massive use of Bitcoin in the handling of drug deals through the Silk Road, which was terminated as the FBI stopped trading in October 2013. The value is greatly reduced. On the other hand, veterans in the trading industry view such negative events as evidence that the “bitcoin” industry is maturing. Therefore, shortly after the disappearance of bad news, “bitcoin” began to gain value.
Perceived value fluctuation
Another important reason for the “bitcoin” value volatility is the perceived fluctuations in “bitcoin”. You may know that this digital currency has properties similar to gold. This was determined by a design decision by the core technology manufacturer that limited its production to a static amount of 21 million BTC. Because of this factor, investors can allocate fewer or more assets in Bitcoin.
News about security violations
Various news agencies and digital media play an important role in establishing a negative or positive public perception. If you see that advertising is beneficial, you might do so without paying too much attention to the negative side. Regarding the "bitcoin" security breach, this does allow investors to think twice before investing their hard-earned funds in "bitcoin" transactions. They become too sensitive to the choice of any particular "bitcoin" investment platform. When the Bitcoin community finds security sensitivities, Bitcoin may become unstable, trying to create a good open source response in the form of security fixes. For security reasons, some open source software, such as Linux, was born. Therefore, it is recommended that “bitcoin” developers disclose security vulnerabilities to the public in order to develop a robust solution.
Neel Mehta [a member of the Google Security Team] reported on the latest "OpenSSL" vulnerability by the "Heartbleed" vulnerability on April 1, 2014, which seems to have had a degree of impact on the value of Bitcoin. According to some reports, the value of “bitcoin” in the following month fell by 10% compared to the US dollar.
For holders with a large “bitcoin” ratio, the option value is smaller
The volatility of “bitcoin” also depends on the “bitcoin” holders who hold a large proportion of such digital currencies. For “bitcoin” investors [currently holding more than $10 million], it is unclear how they will settle positions that have been expanded to legal positions without a serious mobile market. As a result, Bitcoin does not touch the adoption rate of the mass market, which is critical to giving option value to large Bitcoin holders.
The influence of the Gott Mountain
The recent high-profile loss at “Mt Gox” is another important reason for the “bitcoin” volatility. All of these losses, and the resulting news about significant losses, have a double impact on instability. You may not know that this has reduced the total liquidity of Bitcoin by nearly 5%. This may also increase the remaining "bitcoin" value due to increased scarcity. However, replacing this increase is a negative result of the subsequent news series. In particular, many other "bitcoin" gateways view Mt Gox's major failures as an optimistic view of the long-term prospects of Bitcoin.