You might have heard about Bitcoin. It is the pioneering cryptocurrency that has attracted investors across the globe with drastic drops and spectacular rises. This fluctuating price volatility presents both immense opportunities and significant risks. Whether you are a master trader or just entering the crypto world, you must understand what drives the bitcoin price.
Looks like the introduction triggered your curiosity. In that case, this blog will guide you about the exciting yet unpredictable market.
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Factors Behind Bitcoin’s Price Swings
There are several factors behind the Bitcoin price swings:
Supply and Demand
Like other products, supply and demand drive Bitcoin’s price. It has a finite supply of 21 million coins, with new coins making their way into circulation at a decreasing rate. While increased demand in front of a limited supply certainly pushes prices up.
Market Sentiment and Speculation
Investor sentiment heavily influences this sector. These individuals catch the latest regarding cryptocurrency on the news, social media, and public opinion. For instance, positive news like regulatory clarity, institutional adoption, and new technological developments compels investors to purchase more. Whereas, negative news like exchange hacks, geopolitical problems, and regulatory crackdowns provokes them to sell immediately.
Besides these, there is speculative trading as well, where individuals purchase and sell, watching the short-term price movements, further augmenting the volatility element.
Regulatory Developments
Did you know that government regulations also play a crucial role? Their Bitcoin ETFs’ approval can increase confidence and drive demand. On the other hand, restrictions or bans can result in massive selling as investors find those particular Bitcoins useless. Hence, similar developments affect the asset’s price.
Macroeconomic Factors
Macroeconomic factors in the form of interest rates, economic stability on the whole, and inflation levels can impact investors’ hunger for riskier assets such as Bitcoin. Some consider it a safe approach during economic issues, resulting in inflows.
How To Manage Risk in a Volatile Market?
You can manage risk in the following ways:
Do Your Own Research
Deeply understand Bitcoin’s technology. Use cases and the crypto ecosystem. Refrain from investing because of hype.
Dollar-Cost Averaging
Proceed with investing a fixed amount, instead of a lump sum. This technique assists in averaging your purchase price, reducing the impact of short-term volatility.
If you want to know more about Bitcoin price, then check out ByBit. The site shows the consistent fluctuation, and you can decide for yourself.
Frequently Asked Questions
Is Bitcoin a good long-term investment, given its volatility?
Bitcoin has shown significant long-term growth despite its volatility; it’s considered a speculative investment.
Why is Bitcoin so volatile compared to traditional investments?
Bitcoin’s high volatility stems from several factors, including its limited supply, reliance on market sentiment, and speculation.
