The high volatility of Bitcoin cannot be disputed. In November, 2017, Bitcoin price dropped by about $1000, just weeks after experiencing an unusual spike in value. This numbers demonstrate how volatile the cryptocurrency is, begging the question: What causes such massive price shifts? Our extensive research has led us to the following reasons:
Politics drive the price of Bitcoin
Politics has played and still plays a big role in the shifting of Bitcoin price. For example, some governments have not taken the explosion of Bitcoin lightly. They have put measures to ensure it doesn’t infiltrate into their countries. For example, China’s move to regulate and even outlaw Bitcoin transactions caused Bitcoin price to plummet. The U.S. regulates Bitcoin use in the country. In fact, banks and government institutions have stated clearly that they will not be liable for any money lost through Bitcoin transactions. However, when Japan accepted Bitcoin as a medium of exchange, the price skyrocketed.
The management of Bitcoin
Although Bitcoin does not have a regulator, critical decisions about how it will operate and grow have to be constantly made by its administrators. These decisions can affect Bitcoin price.
Transactions that take place on Bitcoin network have to be verified. Luckily, the platform has a team of developers who created and improves the software that helps to verify Bitcoin transactions, as well as a team of miners who actually verify Bitcoin transactions. For any changes to be made to the software, the developers have to get more than 50% of miners in the network to agree to it. When such an announcement is made public, it can impact the price of Bitcoin.
Psychological factors can affect Bitcoin Value
Ask any accustomed investor, and they are likely to tell you that psychological factors can impact the price of a stock or share. This also applies to Bitcoin price. This is substantiated by the fact that investors make critical decisions based on other investors’ behavior, rather than solid market analysis. For, example, possible news coverage of Bitcoin can make the price to go up and vice versa. So, yes, psychological factors can play a role in the shift of Bitcoin value.
Because cryptocurrency is a new market, there are no mathematical mechanisms in place to project how the price will look like in the future. Awareness is the only thing that will help you in this uncertain market. So, it’s recommended that you don’t invest more than you can be comfortable to lose when the market doesn’t go your way.