Bitcoin Volatility: What Factors Affect The Cryptocurrency Price?
Fluctuations in the price of Bitcoin for some is a terrible enemy, for others – a way to get X-profit. How can the government influence the price of Bitcoin despite its decentralization?
Neck or Nothing
Bitcoin, trading speculation, investing – as analysts show, this is the main model for the perception of cryptocurrency in the current conditions of the financial market development. Despite the possibility of paying for goods or services using Bitcoins, this is not very popular. Most people buy cryptocurrency to invest and reallocate assets in their portfolios.
The volatility of Bitcoin assesses in terms of making a profit because a sharp jump in the price of Bitcoin can add high returns to investors. But there is another side to the coin: Bitcoin price fluctuations make the asset risky, so traders with an incorrectly chosen strategy may be left with nothing.
Despite its decentralization, Bitcoin is susceptible to external factors that can lead to an asset rise or fall. Let’s take a look at some of them.
The press as an engine of sentiment in the crypto market
News about Bitcoin appears in the information field every day and is the driver that influences the mood of crypto market participants. If Bitcoin is portrayed in a negative light in the media, its price could plummet and trigger a massive sell-off. Information resources can speculate with news about the price movement of Bitcoin and “swing” the volatility of the crypto asset like a pendulum.
Government and fiscal policy
The government acts as the “gray eminence” of the financial market, and Bitcoin cannot completely escape from its influence. It is directly related to fiscal policy, in particular with the regulation of reserve currencies. The government, through its decisions, can influence the price of fiat currencies and thus control the mood in the financial market. The benefit is also at the top here: if investors see prospects in currency, they can switch from crypto to fiat and vice versa.
Tax policy also “infringes” on the possibilities of cryptocurrency holders and can provoke the sale of an asset. The government independently regulates the taxation of transactions with digital assets, so high-interest rates can play a cruel joke with Bitcoin and negatively affect its price movement in the long term.
Bitcoin price has never been stable in its history, and this is the factor that stops some investors from buying cryptocurrency. The status of a risky asset was entrenched for Bitcoin due to the so-called “bubble” effect: when a jump in the price of a crypto asset turns into a sharp collapse. Not all traders can predict this scenario of events, therefore, losses, as in any financial market, are inevitable.
However, it is the volatility that has led to the emergence of Bitcoin millionaires who, with a well-designed trading strategy, make X-profits.