The virtual currency, Bitcoin, has taken the world by storm.
Although Bitcoin has been around since 2009, its popularity only started gaining in 2013-14, with its value rising exponentially to as high as USD 1,000 per unit in November 2013.
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| Why is Bitcoin so Volatile in Nature? Here are Some Points to Read: eAskme |
Since then, various businesses have started accepting bitcoins as payment, and the number of people trading in bitcoins is also increasing quickly.
So, what’s all the buzz about?
Why are so many people keen on buying and selling bitcoins?
This article attempts to answer this question by examining why Bitcoin can be considered volatile.
This detailed article highlights some informative points that help you know more about this buzz in detail.
Read on to learn more!
List of Reasons That Support The Volatility of Bitcoins:
The supply is limited:
Unlike most currencies and traditional commodities, only a certain number of bitcoins can ever be mined and released into circulation.
This protects the currency from ever being devalued due to overproduction.
In fact, due to bitcoin’s limited supply (only 21 million bitcoins will ever be mined), many argue that it is much more valuable than traditional fiat currencies such as dollars or euros.
This factor combines to make Bitcoins a unique kind of tradable financial asset that’s still figuring out what its real value should be.
There are no actual Bitcoin bills or coins:
That’s right. There is no physical manifestation of bitcoin. It only exists as code.
This idea can be hard to grasp at first because most of us are used to dealing with things we can touch and feel (bills, coins, etc.).
However, bitcoins can still be used in many ways as a real currency because they act like one.
They are fully legal: You may have heard stories about people buying or selling goods using illegal items or substances.
Well, it’s possible to use bitcoins for illicit purposes like these, but they are not unlawful.
The blockchain ledger system tracks every transaction made using bitcoin so that everyone has a consensus on what bitcoin is worth in any given period (like seconds).
Demand for bitcoin has been growing:
With more and more people using bitcoin, demand for it has been increasing.
Because of that, its price is also going up.
Bitcoin’s price tends to be very volatile, but it is not rare to see its value increase by large amounts in a very short period—especially when something big happens in China or Japan.
With more demand and increasing prices, we will likely continue to see bitcoin become more valuable as time goes on.
As more people get involved in bitcoin, its price rises:
This has been a pattern since 2009 when bitcoin was created.
The digital currency was worth pennies then, but now people are paying as much as $266 for each bitcoin.
Many people think it’s only going to go up in value, and that’s certainly possible.
However, there are no guarantees.
All we know is that more people want it, so its price keeps rising, resulting in a greater risk for Bitcoin volatility.
The cost to mine (create) a single bitcoin continues to rise:
The cost to create one bitcoin is currently estimated at $4,000. It has risen from about $1,000 in early 2017.
The value of a single bitcoin is still extremely volatile and sensitive to news events, such as changes in regulation or even rumors of new rules.
Because of that volatility, we’ve seen large swings in its price over a relatively short period.
Based on certain predicted scenarios, it can be stated that a little more stability would go a long way toward making the digital currency more mainstream.
Conclusion:
So, these were some reasons why Bitcoins are volatile.
Keeping note of these aforementioned points before Bitcoin investment is of utmost importance.
Doing so will stay on the right track of your financial investment in cryptocurrencies, especially Bitcoins.
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