Bitcoin Volatility

What is Volatility?

Volatility is the speed or rate at which an asset’s price changes over a specific period of time. When we refer to an asset as being “volatile,” or having “high volatility,” it means there’s a tendency for it to wildly swing in price. Owning that asset might feel like you’re being tossed about like a small boat on a stormy sea.

Why is Bitcoin’s Price so Volatile?

People generally buy and sell Bitcoin with an investment mindset. In other words, while it’s certainly possible to spend your bitcoin on a variety of things, it’s not yet a completely accepted form of payment. So, people mostly buy it hoping the price will go up and they’ll turn a profit.

The Pizza That Changed History

Think about it … during the first year, Bitcoin’s price barely moved at all. It was next to worthless. Then a guy bought a pizza with 10,000 BTC and the price skyrocketed a whopping 900%! To 8 cents! Yeah. 8 cents. We’ll pause here and wait for you to stop laughing!

  1. At 8 cents, unless you have thousands of bitcoins, it’s not really worth selling … at least, not compared to the potential if it keeps going up (and these were people who totally believed in the future of Bitcoin).
  2. The only way to really buy or sell it in those days was through personal peer-to-peer (P2P) arrangements.

The Bitcoin ATM Factor

Fast forward a few years to 2013, and you have the world’s first Bitcoin ATM installed in Vancouver, BC. The next year, Coin Cloud and a few other early adopters were placing them in the USA. Now suddenly you didn’t have to make a deal with a stranger and meet them in a coffee shop or back alley to buy or sell bitcoin for cash. And you didn’t have to send your money to Japan to use the world’s only online exchange, while risking your account getting hacked.

How News Affects Price

These days, we see the price of bitcoin fall when there’s bad news (like the announcement of the COVID-19 national emergency) and soar when there’s good news (like PayPal offering the currency for sale on its platform).

How Anxiety Affects Price

With Bitcoin still being relatively new, and highly technical, a lot of people panic when it comes to buying or selling it. They don’t fully understand it, so they second-guess their choices. Even financial experts aren’t always sure what to do with cryptocurrency.

How Market Size Affects Price

Before buying and selling was easy to do, the illiquidity kept the price pretty steady. Now, typically an asset becomes less volatile as it becomes more liquid. But the cryptocurrency market is still so small that if somebody (like an early miner with a big stash, also known as a whale) decides to sell off a lot of bitcoin, there aren’t enough traders willing or able to buy it. That rocks the boat the same as if a real whale did a belly flop beside your canoe.

Can We Stop it?

We don’t necessarily want to stop Bitcoin’s volatility entirely. But the truth is that it should naturally become less and less volatile, and more and more liquid, over time.

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Coin Cloud

Coin Cloud

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The world’s leading operator of two-way Digital Currency Machines (DCMs), more advanced Bitcoin ATMs.