Bitcoin’s price is very volatile due to speculation – the majority of activity taking place within the crypto industry is based on investment, although a host of jurisdictions have adopted the crypto as a medium of exchange to buy physical goods.
As such, the trading in Bitcoin takes the example of how people buy traditional stocks, which creates a buy-and-sell cycle that drives the digital asset’s price wild. It is therefore no surprise that no single expert has succeeded to accurately measure the intricate impact of volatility on virtual currency adoption.
However, analysts believe that in that intentional effort can be invested in helping Bitcoin’s volatility to even out. Among the ways that such a situation can be achieved is through educating stakeholders on the factors leading to the cryptocurrency’s price fluctuation.
Indeed, understanding how public perception, media coverage, and government regulation, affect the Bitcoin price will guide people on best practices in trading crypto.
Public image has to be the most significant factor leading to Bitcoin’s volatility. The value of digital assets suffer a hit when a large number of crypto investors respond to industry skepticism concerning their holdings.
Regardless of whether negative public perception is founded on substantiated claims or not, a poor image can easily cause the destabilization of cryptocurrencies by great margins. Such an event often leads to a selling panic when investors rush to liquidate all their holdings in anticipation of potentially devastating financial losses. Bad decision making has become characteristic to trading decisions regarding Bitcoin, which is still a not-so-well understood subject across investment corridors.
The fact that most members of the general public have little to no information about cryptocurrencies has created ample breeding ground for bad press and fake news.
When media outlets report negatively on assets, Bitcoin has a far greater chance of being smeared with mud compared to other forms of investment. Conversely, the novelty and mysterious aspect of crypto trading can generate positive media buzz that would in turn drive the crypto price upwards.
Courageous investors and organizations looking to taste a piece of the crypto pie will almost always be willing to cash into the Bitcoin perception by making huge purchases in reflection of an international need to “embrace a crypto-enabled future”.
Nonetheless, Bitcoin’s volatility cannot be only tied to public perception and press coverage. One of the most significantly important attributes of digital currency is its natural suitability to the international market.
The digital aspect of Bitcoin transactions means that trans-boundary transfers can be done efficiently and at a reasonable cost. Indeed, Bitcoin and other cryptocurrencies have helped us conceive the idea of a world where money transfers become very simplified.
Instead of the cumbersome banking processes involved in sending and receiving fiat money, crypto transfers can mirror the simplicity of email communication.
Government Regulation and Institutional Policies
Similar to public perception, the manner in which governments interact with cryptocurrencies is bound to affect price movement in either direction.
On one hand, government recognition can actually influence Bitcoin adoption, hence an increase in value, as investors gain confidence that such attention would lead to the much-needed regulation of the industry.
Otherwise, investors may be spooked by the realities of government mediation as such action presents a myriad of challenges and concerns. Take into account that a number of investors chose crypto for its technical differences over fiat currencies.
Today, there is a real fear that policymakers will tamper with the decentralized, peer-to-peer nature of crypto finance. So, when governments become vocal about their intentions to oversee and regulate Bitcoin, both positive and negative influences on the Bitcoin price are bound to be witnessed.