Why Does Bitcoin Fluctuate (Why Does Bitcoin Have Such High Volatility)
Why does Bitcoin fluctuate? In recent market volatility, Bitcoin\’s price trend
Why does Bitcoin fluctuate? In recent market volatility, Bitcoin’s price trend is closely related to traditional stock prices. From historical data, it can be seen that when the market enters a new bull market, many investors will believe that the bear market has ended.
So why does BTC appear at such a high price level? And how does it affect the market? This article will briefly explain this relationship – why Bitcoin experiences fluctuations. Why does Bitcoin experience fluctuations (see Figure 1)?
Since its establishment in 2009, Bitcoin has always been in this stage until it began to develop into a store of value in early 2017. At that time, Bitcoin was generated through mining. Over time, this process has become more difficult and slower.
After the “312” in 2013, Bitcoin went through a long period of decline, and experienced a crash between late 2015 and the end of 2016. However, on June 2, 2018, due to the market panic caused by the COVID-19 pandemic, global stock markets, debt, and foreign exchange investments all surged, and the entire cryptocurrency industry returned to normal. 1. Bitcoin price fluctuates dramatically because it has a certain degree of scarcity and has not been tested much. 2. Traders have a great demand for volatility. According to the International Securities and Exchange Commission (II SEC) annual report released in 2020, exchanges hold a large amount of digital assets as settlement units and provide services to the public. However, these businesses are often excluded. 3. Lack of liquidity in exchange funds. Currently, most digital assets belong to exchanges or custodians. Although these companies do not want users to achieve high returns, if there is more money in exchanges, they will seek to make better use of existing financial infrastructure, such as banking systems or credit card systems, and so on. 4. “Bitcoin futures contracts are a derivative instrument.” Generally speaking, arbitrage transactions between exchanges can be used to determine whether there are enough leverage positions in the spot market. 5. “Bitcoin options” allow both buyers and sellers to trade on a lower-risk basis, so people can increase their positions through options to reduce losses.
In addition, in order to reduce the volatility and the impact of price changes of Bitcoin, traders must ensure that they can bear the risks. For example, the strategy of “1 coin, 1 million coins” allows many people to earn more than 50% returns instead of waiting for profits. “Bitcoin options” allow buyers to sell their Bitcoins when they expect profits, thereby increasing their ability to gain. In addition, if the actual demand for Bitcoin is high and optimistic in the long term, it may face greater market pressure.
Why Does Bitcoin Have Such High Volatility?
Editor’s Note: This article is from Zhongben Xiaocong (ID: xcongapp), Author: Wuhuoqiu, authorized by Odaily Planet Daily.
Hello everyone, I am July, an experienced participant in the cryptocurrency market. Today I will introduce to you the principle of Bitcoin.
Let’s first take a look at what “cryptocurrency” is, because Bitcoin is a financial instrument that combines digital assets and blockchain technology. In traditional markets, it has two forms: one is traded in fiat currency; the other is traded in precious metals such as gold, silver, or oil. These two commodities are issued by the government. However, they are not completely decentralized and have anonymity, so they cannot have any impact on investors and are difficult to be known by the public:
In the first case, the term “cryptocurrency” sounds simple-it is something based on the concept of a virtual world in cryptography, which is used by people to exchange value. But when these things are spread through the Internet, there is no need to use traditional banking systems, but can electronically transfer their funds from the network to the wallet.
The second case is called “deflation”. This term actually refers to individuals who are not supported by physical institutions. They hope to convert their assets into “fiat currency”, or maintain their normal living standards in the current unstable market environment. For example, if a country wants to ban Bitcoin, it must have a legal economic system and the related tax system to avoid the participation of people from other countries.
The third phenomenon is called wash trading. Generally speaking, when the market liquidity is poor, there is often a situation where the market maker manipulates prices. “Wash trading” is actually a relatively common practice. Many times, someone will use the Bitcoin they hold to buy altcoins and then sell them off. In the eyes of some retail investors, such operations are very dangerous because once they sell out, it will lead to a large number of profits exiting the market. The process of “washing” is like an attitude of systematic investment. Once risks are discovered, the chips in hand are immediately sold. This can easily lead to misjudgment. After all, do you think the rise in the price of Bitcoin in your hands has ended? Of course, such things are not impossible. How many Bitcoins do you think you still have in your hand? That’s your money. And over time, you will see more and more individuals hoarding Bitcoin. For investment, the most important thing is to understand the fundamentals of Bitcoin. No matter what kind of investment behavior you have, first of all, you need to understand the underlying logic behind Bitcoin; secondly, you need to know if Bitcoin itself belongs to a real industry in the true sense; finally, we need to learn how to view its development process in order to understand why it has such a large increase.
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