Why is Bitcoin so volatile?

Since its launch in 2009, Bitcoin has become one of the most eye-catching digital assets in the global financial market. Its price volatility often confuses investors and analysts, and some even believe that this volatility is the essential characteristic of Bitcoin. The reason is that there are many factors that affect the price of Bitcoin, including market supply and demand, policies and regulations, technological development, and investor sentiment. This article will explore these factors in depth, provide detailed analysis and examples, and help readers better understand the root causes of Bitcoin price fluctuations.

Bitcoin's volatility can be said to be a microcosm of the digital currency market. In this market, investor sentiment often has a significant impact on prices. For example, when good news appears in the market, investors' buying enthusiasm will quickly increase, driving up Bitcoin prices. Conversely, when negative news comes out, investors sell in droves, causing prices to fall sharply. This kind of sentiment-based volatility is also common in traditional financial markets, but in the Bitcoin market, due to its relatively small market size, the volatility is more significant.

In addition, supply and demand are important factors affecting the price of Bitcoin. The total amount of Bitcoin is limited, with a maximum of 21 million Bitcoins. This scarcity causes the price of Bitcoin to rise rapidly when demand increases. For example, in 2020, as more and more institutional investors entered the market, the demand for Bitcoin surged, causing the price to break through the historical high. This phenomenon of supply and demand imbalance often occurs in the Bitcoin market, making price fluctuations more intense.

Changes in policies and regulations are also an important factor affecting Bitcoin price fluctuations. Governments around the world have different regulatory attitudes towards Bitcoin. Some countries support the development of digital currencies, while others take restrictive measures and even ban Bitcoin transactions. For example, in 2021, the Chinese government once again stepped up its crackdown on Bitcoin mining, causing market panic and an instant drop in prices. This policy uncertainty has made investors always wary and skeptical when facing Bitcoin, further increasing price volatility.

Technical factors cannot be ignored either. Bitcoin's underlying technology, blockchain, not only supports Bitcoin transactions, but also affects its price. For example, network upgrades or technical improvements may improve the efficiency and security of Bitcoin, thereby attracting more investors. On the contrary, technical vulnerabilities or security incidents will cause investors to lose confidence and cause prices to fall sharply. In 2016, hackers attacked a forked project of Ethereum, which led to increased market concerns about the security of blockchain and affected the entire digital currency market, including Bitcoin.

Investors’ behavior and psychological factors are also important links that cannot be ignored. The high frequency and speculative nature of Bitcoin transactions cause market sentiment to fluctuate violently. Many investors tend to trade based on short-term interests, causing prices to change rapidly. This speculative behavior is particularly evident in bull markets, where investors blindly chase rising prices, causing prices to soar; while in bear markets, panic selling causes prices to fall rapidly. The popular "FOMO" (fear of missing out) and "FUD" (fear, uncertainty and doubt) emotions in the market often dominate investors' decisions, further exacerbating Bitcoin's price fluctuations.

In addition to the above factors, market liquidity also has an important impact on Bitcoin price fluctuations. Compared with traditional financial markets, the liquidity of the Bitcoin market is relatively low, especially during certain trading hours, when the number of buyers and sellers may be unbalanced. When market liquidity is insufficient, a single large transaction may have a drastic impact on prices. For example, on an exchange, an investor suddenly sells a large amount of Bitcoin, which may cause the price to drop instantly, triggering a chain reaction, and other investors will follow suit and sell, forming a panic drop.

In addition, changes in the global economic situation will also have an impact on Bitcoin prices. When economic uncertainty increases, many investors will choose to view Bitcoin as a "safe haven asset", thereby driving up its price. For example, during the COVID-19 pandemic, the global economy declined, and many investors began to pay attention to Bitcoin, believing that it could resist the risk of inflation, causing prices to rise rapidly. This change in the macroeconomic environment is often directly related to Bitcoin's price fluctuations.

When analyzing the factors that affect Bitcoin price fluctuations, we cannot ignore the technical analysis and fundamental analysis of the market. Technical analysis uses data such as historical prices and trading volumes to predict future price trends, while fundamental analysis focuses on the fundamental factors of Bitcoin, such as market demand and policy changes. Many investors will combine these two analysis methods to develop trading strategies, but due to the particularity of the Bitcoin market, the accuracy of predictions is often limited. Therefore, when investing in Bitcoin, investors need to remain rational and avoid blindly following the trend.

In general, the price fluctuation of Bitcoin is the result of the interaction of multiple factors, including market supply and demand, policies and regulations, technical factors, investor sentiment, market liquidity, and global economic situation. Understanding these factors can not only help investors better grasp market dynamics, but also improve their success rate in Bitcoin investment. The market is complex and volatility is the norm, but as long as we remain rational and conduct in-depth analysis, we can find our own direction in this volatile ocean.

In this fast-changing digital currency market, investors need to stay vigilant, pay attention to market dynamics, and understand the impact of various factors on Bitcoin prices. Although the future of Bitcoin is full of uncertainty, the technology and ideas behind it are still attracting more and more people to join this field. Whether as an investment tool or as an emerging way to store value, Bitcoin is constantly challenging the rules of the traditional financial system. For every investor, a deep understanding of the reasons for Bitcoin's fluctuations is the first step towards success.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

In recent days, the price of Bitcoin can be said to be a concern for every investor. On September 1, the price of Bitcoin was still $11,847, and then the price of Bitcoin fell sharply. As of press time, the price of Bitcoin fell by $10,000 and finally stopped at $9,998. Because of this, why is Bitcoin so volatile? This question has become the question that investors want to know most. So, why is Bitcoin so volatile? The following editor of the currency circle will give you a comprehensive analysis of why Bitcoin fluctuates so much?
 Comprehensive analysis of why Bitcoin fluctuates so much?
1. Perceived Value
One of the reasons why the price of Bitcoin and other cryptocurrencies varies dramatically compared to fiat currencies is the store of value they are perceived to possess over fiat currencies.
When it comes to Bitcoin, there are a few properties that make this cryptocurrency comparable to gold – there are a limited number of Bitcoins that will ever exist in the world, and mining this cryptocurrency is becoming increasingly difficult.
Fiat currencies are different from Bitcoin and gold. They are maintained by governments to keep employment high and inflation low, and they hope to maintain a satisfactory level of growth through investment of capital resources.
This means that economies built on fiat currencies are either strong or weak. Some people have come to prefer investing more or less in Bitcoin compared to the value of fiat currencies, so it affects how they feel about the value of Bitcoin.
2. Bad Press and Adoption
As Bitcoin grows in popularity around the world, it is sure to attract attention and raised eyebrows. One of the reasons Bitcoin and other cryptocurrencies are so popular is that they are not regulated by governments.
In reality, there is no central authority that determines the course of the cryptocurrency space.
Bitcoin has made headlines for several bad things, with bad actors destroying the cryptocurrency’s reputation and giving governments more reason to push for regulation.
Combined with media exaggeration, public opinion has led to several dramatic changes in the value of Bitcoin over the past few years.
This public perception plays a big role in influencing price fluctuations, but it is also seen as a sign of the maturity of the cryptocurrency market. Investors who are friendly to Bitcoin have been steadfast in their investment decisions.
The value of Bitcoin and other cryptocurrencies has always plummeted after major events such as Mt. Gox, only to recover.
3. Amplified losses
One of the most important things to note is that the impact of Bitcoin price fluctuations is magnified when it comes to the losses people face and the subsequent news about those losses.
The scarcity of the total number of Bitcoins increases the value of Bitcoin, and even if some negative news about Bitcoin hits mainstream news, the appreciation of Bitcoin is still hindered by more negative news about this cryptocurrency.
This is a vicious cycle that affects people's perception of the long-term value of Bitcoin.
While some early adopters of cryptocurrencies have shown poor management skills, putting a lot of pressure on Bitcoin's reputation, there are also some new entrants that are learning from the mistakes of their predecessors to improve operations. The overall strength of Bitcoin and other cryptocurrencies is increasing, but the overall price of Bitcoin is still constantly volatile as any negative news about Bitcoin can enter the mainstream news.
4. Investors react to security breaches
Another reason for the large fluctuations in Bitcoin prices is the potential security vulnerabilities of Bitcoin. Whenever someone points out a vulnerability in the system and a bug in the way it works, the community will make a collective effort to fix the problem and security loopholes, but at the same time, concerns about security also make the public uneasy.
Investors who hold large amounts of cryptocurrencies are beginning to sell their assets. Bitcoin is flooding back into the market and being exchanged for fiat currencies, which can drive the price of Bitcoin down within hours.
But it presents an opportunity for others to invest in these products at a low enough price to bring prices back down until the safety issues are resolved.
5. Major Bitcoin Holders
There are a lot of early adopters who were able to acquire a large amount of Bitcoin in the early days. Currently, their cryptocurrency holdings are worth millions of dollars and they don’t have a lot of choices when it comes to what to do with their crypto assets.
There are only a limited number of Bitcoins in the world, and the scarcity of resources creates a tricky situation for large shareholders. Liquidating their assets into fiat currency positions could risk moving the market significantly. The option value is small for large shareholders, also because Bitcoin's trading volume is still only equivalent to that of a small-cap stock. There is not enough mass adoption yet to provide large shareholders with much option value.
 Future Bitcoin Price Prediction in 2020
1. Tom Lee Bitcoin Price Prediction
Tom, former chief equity strategist at JP Morgan and co-founder and head of research at Fundstrat
Lee believes that the break-even cost of mining 1 BTC is directly related to the price of the cryptocurrency. He believes that BTC will grow as he counts on more institutional investors to adopt Bitcoin and the Bitcoin user base to grow steadily. He recently said in an interview that Bitcoin can bring 100% returns to investors in 2020 after the Bitcoin halving event expected to take place in May 2020.
2. Fran Strajnar Bitcoin Price Prediction
Fran
Strajnar made a very optimistic prediction, he believes that BTC could reach $200,000 by January 2020. He believes that the rate of adoption is directly proportional to the increase in price. The higher the adoption rate, the more the value increases.
3. Bobby Lee Bitcoin Price Prediction
Bobby Lee, CEO of China's first exchange BTCC, once said that it would take 20 years for Bitcoin to reach $1 million. Now his prediction has completely changed.
Bobby Lee, co-founder of BTCC (Hong Kong) and Charlie Lee, founder of Litecoin
Lee's brother gave an extremely optimistic prediction, but it started out bearish. He claimed that Bitcoin could start to recover from late 2020 and could reach $333,000 in 2021 before falling to $41,000 in 2023. He repeatedly stated that the market capitalization could reach $7 trillion, potentially exceeding the market capitalization of gold. He even mentioned that Bitcoin will lead to price stability and global liquidity in the coming years.
4. John McAfee Bitcoin Price Prediction
John McAfee
McAfee has been one of the stagnant Bitcoin enthusiasts who has come up with his predictions from time to time. He has recently become more optimistic than ever, saying that Bitcoin could reach $1 million by 2020. Other Bitcoins like Apollo and MTC could rise 10 times more than BTC enthusiasts. He recently said that his past prediction of $1 million for Bitcoin was just a ruse.
McAfee predicts that 10 years from now, “there won’t be any fiat currency in the world, and everything will be crypto.”
5. Tim Draper Bitcoin Price Prediction
Tim Draper
Draper is one of the famous venture capitalists who predicted that Bitcoin will account for 5% of the currency market by 2023. He is optimistic that the price of Bitcoin may rise to $250,000 by 2023.
Through the above introduction, I believe everyone has some understanding of why Bitcoin fluctuates so much. The editor of Coin Circle reminds investors to learn as much as possible about the working principle behind Bitcoin, and then find their own method of when to buy and sell. Don't blindly follow the opinions of others to trade. This will cause investors to make money or not completely in the hands of others, without any self-judgment. If you want to know more about this, you can pay attention to Coin Circle. The editor of Coin Circle will continue to update related reports later!