5 Reasons Why Bitcoin and Cryptocurrency Prices Can Be So Volatile

Just before Christmas last year, cryptocurrency enthusiasts felt ‘over the moon’ as most cryptocurrencies were hitting all time highs, breaking all barriers and records set before it.

On December 21st, 2017, there was a steep fall in the value of Bitcoin, falling to as low as $12,500, which led to a drop in value of all other cryptocurrencies. This lead to a 20% drop in the value of all cryptocurrencies, from $611 billion to $478 billion.

While many are wondering why this happened so quickly, here are 5 possible explanations.

Seasonal spending

With festive time round the corner- Christmas, Hanukkah and New Year, this is a particularly bad time for investments as people tend to withdraw their yearly gains this time around.

Cryptocurrencies are more difficult to use than regular ones- you cannot buy groceries or pay your bills with them, these are merely speculative investments. Many investors tend to hold on to their cryptocurrency holdings till the festive season and then spend it when they need the money the most.

Other Cryptocurrencies’ overload

When Bitcoin surged, so did the other cryptocurrencies like Verge, TRON, Ripple and Cardano on the Online Bitcoin Exchange. Many people sought to divert funds from their Bitcoin holdings to these other cryptocurrencies, temporarily destabilizing the Bitcoin market. If Bitcoin were just another cryptocurrency, this would not have made a difference, but Bitcoin is considered the ‘king’ of all cryptocurrencies. Whatever happens to it, you like it or not, affects all other cryptocurrencies market values.

Manipulating the market

According to a report in Bloomberg- about 1000 people own about 40 percent of all the Bitcoins in the world today. This gives them the power to manipulate the market at their own whims and fancies. These so called Bitcoin ‘whales’- hedge funds, investors and others can come together and sell their Bitcoins for a small margin to each other and then again resell them for the same margin giving an impression for high transaction volumes, thus artificially inflating the value of Bitcoin.

When others in the market begin to take notice, this could result in a chain reaction ensuring high volatility in the pricing and selling volumes of Bitcoin. There is also Bitcoin futures trading launched which can further short up the market.

Hacking Concerns and Regulation

There have been cases around the world where cryptocurrency exchanges have had to halt operations or shut down due to hacking attacks or regulatory non-compliance. This has led to fear in the markets with prices dropping every time such incidents occur. Some investors even sell off their entire inventory panicking whenever such incidents come to the fore.

The Bitcoin Bubble seems real and there is a chance of prices dropping

There is a chance that the Bitcoin bubble may burst and that experts who foresaw it may be right. However, there is an argument against this saying that the volatility in Bitcoin has been there all throughout 2017 and 2018 may not be any different. The sheer volume of players means that there is a full exponent of truth greater than its ever been. Newer participants in the market who may not have experience in navigating the market may be more sensitive to the down movements. You can buy bitcoin and other cryptocurrencies from EVONAX.

If there is a chance of the prices of Bitcoin and other cryptocurrencies dropping, the past 8 years has revealed two concrete things- the price of Bitcoin has always bounced back-along with all other cryptocurrencies, irrespective of the incidents in the markets. Secondly, the demand will always be there for blockchain technology and decentralized cryptocurrency.

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