There are many benefits to being a crypto enthusiast, especially Bitcoin, whether you’re in it for the short or long term. But there’s a flip side while making your way to financial freedom with Bitcoin — you must consider the price fluctuations. This is called Bitcoin volatility.
Although Bitcoin is not as volatile as other cryptocurrencies due to its high market capitalisation, it is still riskier than more traditional investments.
People who are not in the crypto space often think Bitcoin is a drama queen that enjoys swinging its prices, but there are legitimate reasons for these up-and-down price movements. The major ones are:
- Supply and demand
- Investor sentiment
- Government regulations
- Media attention
- Technical factors
As you continue to read, you’ll discover the nitty-gritty details of these factors and what they mean to you as a Bitcoin investor or trader.
Without further ado, let’s jump right into it.
Factors That Affect Bitcoin Price Volatility
1. Supply and demand
This concept is not new, as it applies to economy and commerce. Still, I’ll give you a refresher as it relates to Bitcoin price volatility.
Bitcoin’s total supply is 21 million, so there will never be an increase beyond this amount. Therefore, if the demand for Bitcoin increases, its value does as well, but if there’s a decrease in demand, the value will also plummet.
Bitcoin is a volatile asset because its supply is fixed. Therefore, the effect on its demand is more intensified.
However, businesses and individuals’ continued adoption of Bitcoin can increase the demand for BTC. This demand would stabilise the coin, drastically reducing its volatility.
2. Investor Sentiment
Doing your crypto research is always a top rule. However, your decision can still be strongly influenced by investor sentiment. Investor sentiment is how the general public (i.e. crypto investors) feels about Bitcoin.
Ask yourself how often you’ve gone on social media, forums, and communities to see what people think about a coin you’re interested in — that is you checking investor sentiment.
The truth is that people like social proof and want to see what others are saying before diving in.
With this, it’s clear to see how investor sentiment can drive the value of a Bitcoin up or down. If bad news breaks on Bitcoin, you can expect its value to plunge. However, positive news will probably send the price flying high.
3. Government regulations
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Although Bitcoin is a decentralised currency outside the ecosystem of traditional financial institutions, it is still affected by some regulations.
For example, when China decided to ban the mining and trading of BTC in 2021, we all saw how much that affected the price. However, when El Salvador adopted BTC as a legal tender, it was a cause of celebration worldwide as its value increased.
So, even though we want to exist outside of a government-controlled economy, unfortunately, some implementation of rules can still affect the value of our Bitcoin assets.
Now, these regulations are not all gloom and doom. Sometimes, laws can be passed to make BTC more attractive to institutions, further driving adoption and value. In fact, it may benefit everyone if Bitcoin is legitimised to give large corporations and institutions the confidence to invest significant capital in Bitcoin.
Government regulations affect the volatility of Bitcoin. So, if you’re interested in investing, keep that in mind, especially the laws in your country.
4. Media Attention
Since its inception, the media has shaped many things, significantly influencing our perception and decision-making.
If the media creates hype around Bitcoin and constantly pushes the agenda, you can bet that people become affected by FOMO (Fear of Missing Out) and invest in BTC. So, whether or not they understand what they’re getting into, BTC’s price will soar.
But, if bad news is repeatedly broadcast about BTC, people’s confidence will decrease, and the price will drop.
This factor affects Bitcoin price volatility, as media attention is also an underlying influence of investor sentiment.
5. Technical factors
Market analysts often use technical analysis to carefully study the price patterns of Bitcoin over some time.
They use specialised tools and indicators to identify these patterns, which allow them to predict the future prices of Bitcoin. You should know that these technical analyses are not always precise and accurate, but they allow you to make an educated guess.
These predictions can influence how people invest in the Bitcoin market and cause the price to go up or down.
Implications of Bitcoin Volatility for Investors
Now that we’ve covered why your charts always look crazy, what does this mean for you as a Bitcoin investor? How do you make the most of this volatility, and how can you protect yourself from the risks? I’ll cover them in these three headings:
1. Risks
- Risk of regulation: Yes, I know that I had stated that regulations can be a blessing, but it’s a double-edged sword. While regulations may not be a cause of concern in your country, they may affect the price of Bitcoin if regulated in another country. I guess that’s one pitfall of having a currency with uniform value globally, right?
- Loss: This is the most obvious risk of the rapid Bitcoin fluctuations. You’ve most likely known one person who lost their money after investing in crypto due to a price decline. So, there’s that ever-present fear that you can lose your Bitcoin investment.
- Fraud: Due to BTC’s transparent and decentralised nature, some malicious people have made it their playground. So, always do all your checks and double-checks before investing.
2. Rewards
- Potential high returns: Despite all the risks in crypto, you know why people won’t stop investing? It’s because they know of the massive gains that can come from BTC. The price fluctuations also drive BTC’s value high, enriching the pockets of its investors.
- Early adoption: Although BTC is still a baby in the investment world, it has had one of the most impressive growth rates and adoption by individuals and businesses. So, as an investor, you have the early-bird edge, which means more profits to cash in. Remember, you don’t want to be like the first guy who sold his BTC for a box of pizza.
- Portfolio diversification: If you like to play it safe by investing in traditional assets, BTC may be the perfect addition to your investment portfolio. It can give you high growth and protect your money from devaluation.
3. How to manage risks
- Invest only what you can lose: Bitcoin is not an asset you invest in with your life savings. Only put in what you know that you can easily let go of.
- Diversification: Your portfolio should be a healthy mix of asset types like stocks, bonds, stablecoins, etc. This reduces risks and shields you from whatever effect Bitcoin’s volatility may have.
- Patience: Bitcoin and crypto generally are not get-rich-quick schemes. You need to invest your time before you start to see results.
Frequently Asked Questions About Bitcoin Price Volatility
Should I buy Bitcoin when low or high?
Investment decisions like this can only be made by you. So you must have investment goals you can use as direction.
If you’re looking for short-term profits, buying when low may be better for you. But, if you’re playing the long game, buying BTC while high may be the way to go.
Either way, please keep in mind that Bitcoin is a volatile asset. So, your risk tolerance and goals will be your best guide in making this decision.
What makes Bitcoin go up and down?
The five most prominent factors contributing to BTC price fluctuations include
- Supply and demand
- Investor sentiment
- Government regulations
- Media attention
- Technical factors
How to predict Bitcoin price
I can tell you when the sun will rise, but there are no tried-and-true methods to tell you what Bitcoin’s price will be.
Bitcoin is a volatile asset whose value is determined by different unrelated factors like Supply and demand, Investor Sentiment, Government Regulations, Media, and Technical factors.
What affects Bitcoin price the most?
Bitcoin’s price is affected by a number of factors, and the most important ones include Supply and demand, Investor Sentiment, Government Regulations, Media, and Technical factors.
Will Bitcoin volatility decrease?
This question is a trending hot topic among market analysts. Some believe that Bitcoin’s volatility will become a thing of the past once its adoption rate increases. While others argue that by design, BTC volatility is here to stay, and no matter of adoption would change it.
However, we’re inclined to believe that Bitcoin’s volatility would decrease due to its increased adoption, more liquidity, and better regulations.
Parting Thoughts
It’s been great cracking the code behind Bitcoin’s price volatility. I’m sure you now know why your chart is the way it is and how you can reap its rewards while keeping clear of the downsides.
And you know the best way to reap the rewards? By using the app with the juiciest exchange rate in Nigeria and Ghana — you know the one I’m talking about, right? The Breet app!
Developed with state-of-the-art technology, your security is guaranteed while smoothly trading either as a newbie or OG. Let’s not forget the in-app crypto rate calculator that shows you precisely what you’re getting in Naira or Cedis.
The best part is that you don’t have to lift a finger after sending BTC to your Breet wallet; your cash can be deposited in your bank account thanks to the Automatic Settlement feature. So, when you’re ready to sell Bitcoin and make maximum profit, use the Breet app.
Go have a blast trading some BTC!
