Will Bitcoin Ever Stabilise?

Bitcoin’s price has always been highly volatile. But why? In this article we’ll explore the key factors driving Bitcoin’s price movements, and what this means for investors.

The Nature of Supply and Demand

The primary reason why Bitcoin price is volatile is the supply vs demand of Bitcoin itself. Supply is a major factor as Bitcoin itself is a digital asset and a deflationary asset that has a fixed capped amount of only 21 million. Thus, if there comes a time when the supply gets lesser and there’s demand for the ownership of it, then it is only logical that the price needs to be raised.

Bitcoin supply is capped at 21 million

Media Influence and Market Sentiment

Even media and news play a role in the crypto space as well. Just a simple tweet by Elon Musk on Bitcoin is able to change the price of the cryptocurrency in a few seconds. If the news, or in general, has a positive sentiment from the people, then it will lead to Bitcoin going up and vice versa.

Elon Musk’s tweets can move markets

The Role of Speculators and Investors

Bitcoin was built as a currency for “the people.” The middleman was meant to be removed. However, Bitcoin has become a commodity traded by both retail traders and institutional traders. When more users enter into any arena, speculation becomes part of the deal (or game). Most traders in Bitcoin now are not looking to be investors for the long run; rather, they are looking for a “get-rich-quick” scenario, with the day trading and haggling over pennies most of the time.

Bitcoin trading is a speculative activity

Regulatory Developments

Blockchain regulation is a very fluid aspect. Digital currency, be it Bitcoin or others, is very new, and almost all developed countries that are trying to assimilate such currencies into their economy have no clue as to how to go about it. This creates a lot of volatility. Any country making new regulations can destroy or cripple demand, thus resulting in major drops in prices in a short duration of time.

Regulatory uncertainty affects Bitcoin’s price

Technological Innovations and Market Infrastructure

The infrastructure supporting blockchain markets is in flux. New technology is being created (e.g., the Lightning Network) that enables faster confirmation/settlement of transactions. More people can generally use the technology if it all works as intended. More users = less volatility as bitcoin is meaningfully integrated into the financial system; more stability over time with the potential of explosive price increases.

The Lightning Network is a key technological innovation

Conclusion

Bitcoin’s price is highly volatile due to a range of factors. While some of these factors may stabilise over time, others will continue to drive price movements. As the cryptocurrency market continues to evolve, it’s likely that Bitcoin’s price will remain highly volatile.

Bitcoin’s price is highly volatile