The volatility of bitcoin depends on many factors. Like the traditional market, the volatility index of bitcoin is also measured by an index known as the Bitcoin Volatility Index. This shows the price fluctuation of the bitcoin over a period of time. However, the price fluctuation allows many day traders to earn money by trading.
The volatility is measured in percentage and it varies from time to time. Some of the main reasons behind the volatility of bitcoin are news, security breaches, the uncertainty of future value, etc. Now here we will focus on different factors that cause bitcoin volatility.
Causes of bitcoin volatility
If you want to know what makes the value of bitcoin so volatile read on. Many experts at https://bitcoin-rejoin.com suggest that knowing the causes of volatility can help you in trading to avoid potential risks.
Bad news events panic the public to move out of the market. News headlines from leading magazines or news channels cause volatility. News like bitcoin may get regulated, or bitcoin may get bankrupted, ban of bitcoin is the primary cause of fluctuation of its values.
Some of the past incidents like the Silk Road incident, the bankruptcy of Mt. Gox are the pieces of evidence when bitcoin value has sharply decreased. In 2020, the coronavirus pandemic has hugely impacted the value of bitcoin. It was the worst market crash in the history of the cryptocurrency crash. So, news has a huge impact on the price fluctuations of bitcoin.
Another important reason behind bitcoin volatility is security breaches. When large bitcoin communities expose that the bitcoin market is vulnerable to security issues, then also the value of the bitcoin fluctuates. When developers reveal the security concerns about the bitcoin market or any trading platform it causes volatility.
Illicit activities like cyber-attacks, money laundering, bankruptcy, or drug involvement are some of the major causes of security breaches. As it is run by a decentralized framework, so there is no regulatory body, it is the responsibility of the bitcoin community or says the users to be careful about the security breaches.
Public panic due to big losses
When a big loss or high-profile loss occurs, public panic also makes the price of bitcoin volatile. Many people sell off their position in panic and the price reduces to double. Whereas some of the traders predict that this is the time when they should buy as the price has reduced with the expectation that it will rise in the future. At that time, the price of the bitcoin fluctuates within a range. So huge losses are one of the major causes of volatility.
The bitcoin is considered as an asset that has a mixed effect on its price change. New tax law by the IRS impacts the price of bitcoin in different ways.
Some news related to tax law have a positive impact on the price of the bitcoin whereas some news has a negative impact on the valuation of bitcoin. If the user has to keep every transaction details of bitcoin then it makes the process slow and many people may not adopt the bitcoin. This is also a major cause of volatility.
Bitcoin event has a great impact on the valuation of bitcoin. The main event “bitcoin halving” is a major cause of bitcoin price fluctuation. This event occurs once every four years. But during the event, the price of the bitcoin fluctuates rapidly before and after the event. The main reason is that the historical data of bitcoin halving shows that the price of bitcoin has significantly increased after the event. So many users trade with high volume which makes the bitcoin market volatile during bitcoin halving.
However, if you’d like to add more explanations for bitcoin volatility, please list them in the comment section.