It is a widely known fact that bitcoins are volatile. But what do we mean by bitcoin being volatile? It means the rate at which the prices of bitcoin increase, and decrease is very high. That is why we have seen a rise and fall in triple-digits percentage-wise in some of the recent tokens. The volatility in this market has great risks attached to it but it is a blessing in disguise. On 15 December 2017, the price of one bitcoin was 17,900 USD and it rose to nearly 20,000 USD on 17 December the same year. Following this, the prices fell back to 14,000 USD and below after 22 December 2017. You can check the btc revolution to learn more about bitcoin trading.
The factors that affect the volatility of Bitcoin are as follows:
- The limited supply of Bitcoin and its high demand: Bitcoin is limited in supply and its demand is high worldwide. Everyone wants to lay their hands on this investment opportunity. Due to the adoption and news of some of the leading financial institutes investing in it.
- The increasing competition in this industry: We are witnessing a new coin every other day being launched and every token is trying to be a problem solver in its way and make a mark in this industry. This confuses the mass investors and the investments in the market get distributed which gives rise to volatility. Since there is no control by any one central bank or any financial body, there are ways through which you get duped by increasing sense of competition.
- Bitcoin’s easy access through various trading platforms: With the introduction of new tokens every other day, new trading platforms are also being launched at a high rate. Every platform has something unique to offer and offers the best deal to its clients. As compared to the other trading platforms, Bitcoin is easy to access, and you also get the best returns easily.
- Government restrictions, limitations and legal concerns: The governments all around the world as well as the financial institutes are still trying to figure out this decade-old concept. This has led to adoption by some and restriction by others which is also a primary reason behind this volatility.
- The hype around it and media coverage: Almost all leading news agencies cover the rise and future of cryptocurrencies, and every expert has their predictions about bitcoin and other cryptos which is a great reason behind market volatility.
Advantages of volatility in this market and the reasons to invest
- HODLING or buy and hold strategy is the most commonly used strategy in bitcoin trading not only by beginners but by some of the most trained professionals. Read the graph and understand the trends in the market to identify the entry points when the prices are about to soar and exit once you hit your targets.
- Scalping is another technique used by some of the most skilled traders to earn handsome profits from this market. Scalp trading is making profits by executing numerous trades with a small percentage of profit from each one of them. This helps the investors to earn a huge sum at the end of it.
- Day trading is another strategy used to earn from market volatility. Since the prices rise and fell extensively every day in this market, traders can invest at the right time after performing technical analysis and booking profits. This can be done by using various tools provided by an efficient platform like Ichimoku and VWAP. So you should not get swayed by emotions, and go for some effective strategies that might help you to get a profitable venture.
- Hedging against risk is placing bets against your trades to minimize your risks. Sometimes on a trading day, things may not go according to your analysis. At this point, you can hedge against your trade and execute a trade opposing your original trade which creates a balance between your profit and loss and safeguards an investor from extensive losses.
Conclusion:
Bitcoin is a relatively new concept and there is still a lot to be discovered about it. People are both excited and confused about this market. Since there is a constant imbalance between demand and supply, it becomes necessary that you check everything about Bitcoin and then start the investment process.