Reasons Why Bitcoin Price Is So Unstable

This particular is because Bitcoin works on a proof of work protocol: in order to create it, you have to mine it using computer processing strength to fix complex algorithms on the Bitcoin blockchain. When this is achieved, you are rewarded with Bitcoin as payment for the “work” you have done. Unfortunately the reward you get for mining has decreased drastically almost each year since Bitcoin’s inception, which means that for most people the only viable way to get Bitcoin is buying it on an exchange. At the current price levels is that a risk worth taking image

Many believe Bitcoin is simply a bubble. I spoke to cryptocurrency expert and long-term investor Fight it out Randal who thinks the asset is overvalued, “I would compare this to many supply and demand bubbles over history such as Dutch Tulip Mania and the dot possuindo bubble of the past due 90s. Prices are solely speculation based, and when you look at Bitcoin’s functionality as an actual currency it is almost embarrassing. ” For those who may know, the dot com bubble was a period between 1997-2001 where many internet companies were founded and given outrageously optimistic valuations based purely on speculation that later plummeted 80-90% as the bubble started to break down in the early 2000s. Some companies such as eBay and Amazon, recovered and after this stay far above those values but for others it was the end of the line.

Bitcoin was actually created in order to take power from our financial systems and put people in control of their own money, cutting out the middle man and enabling peer to peer purchases. However, it is now one of the slowest cryptocurrencies on the market, its transaction speed is four times slower than the fifth biggest cryptocurrency and its nearest competition for payment solutions Litecoin. Untraceable privacy coin Monero makes transactions even more rapidly, boasting an average obstruct time of just two minutes, a fifth of the time Bitcoin can do it in, and that’s without invisiblity. The world’s second biggest cryptocurrency, Ethereum, already has a higher transaction volume than Bitcoin despite being valued at only $676 dollars per Ether in comparison to Bitcoin’s $16, 726 per Bitcoin.

How could Bitcoin’s value so high? Specialists Duke Randal the same question. “It all dates back to the same source and demand economics, relatively there is not very much Bitcoin available and its recent surge in cost has attracted a whole lot of media attention, this combined with the launch of Bitcoin futures which many see as the first sign Bitcoin is being accepted by the mass market, has led to a lot of men and women joining the club for financial gain. Like any asset, when there is a higher demand to buy than to sell, the price goes upward. This is bad because these new investors are entering the market without understanding blockchain and the underlying principles of these currencies which means they are more likely to get burnt”.

Another reason is that Bitcoin is extremely unstable, it is known to golf swing up or down thousands of dollars in less than a minute which if you are not used to nor expecting it, causes less experienced investors to panic sell, resulting in a loss. This is yet another reason Bitcoin will struggle to be adopted as a form of payment. The Bitcoin price can move substantially between the time vendors accept Bitcoin from customers and sell it on to exchanges for their local currency. This particular erratic movement can wipe out their entire profitability. Will this instability go away sooner? Not likely: Bitcoin is a relatively new asset class and although recognition is increasing, only a very small percentage of the world’s population maintain Bitcoin. Until it becomes extensively distributed and its liquidity enhances significantly, the volatility will continue.