Bitcoin is traded 24 hours a day, 7 days a week. There are several methods you can use to decide when to buy Bitcoin, but the upward and downward movements characterizing the cryptocurrency market make it challenging to pinpoint reliable patterns and choose positions accordingly.
The value of Bitcoin is very unstable; volatility is unavoidable, regardless of what attempts are made to change it. Since Bitcoin is subject to steep, massive price swings, analyzing Bitcoin volatility is critical for investment and portfolio diversification. Indeed, many have lost money on their investments, but it’s only half of the story. Let’s not forget about the massive potential for gains. Take advantage of your opportunity to play the market and turn a profit.
Market Volatility: Why Is Bitcoin So Volatile?
The tricky aspect of Bitcoin is that it’s hard to specify the value it brings to its holders. Volatility against the backdrop of cryptocurrency refers to the rapid and considerable price fluctuations over a relatively short time. The value of Bitcoin can swiftly increase or decrease, sometimes by substantial percentages, within a matter of hours or even minutes.
Bitcoin is volatile, but that’s not always a bad thing. Healthy volatility creates profit opportunities. As a matter of fact, without it, it would be impossible for short- and long-term investors to make a profit.
Market capitalization and price are dependent on each other. Market capitalization is calculated by multiplying the overall number of tokens in circulation by the current market price. The higher the market capitalization of a cryptocurrency, the more difficult it is to influence the digital asset’s price.
Bitcoin is the most prodigious cryptocurrency by market capitalization at present, so it’s more stable than gold or stocks, but it’s subject to relatively big price swings. Bitcoin’s value is mainly affected by how many coins are in circulation and how much people are willing to pay.
If You Stop to Think about It, Bitcoin Volatility Isn’t Entirely Bad
The value of Bitcoin stems from its volatility, communicating important information to traders and investors. Depending on where you stand, it’s important to understand your risk tolerance and the cycles in the cryptocurrency market. As mentioned previously, volatility translates into greater opportunities for profit, so it’s a paramount feature of a good cryptocurrency market. It helps Bitcoin grow and allows others to benefit from it.
Rather than something to be feared, t corrections are normal and necessary to maintain a healthy cryptocurrency market. Unfortunately, even in the best of times, people tend to make financial decisions that are at odds with their best interests.
Aversion of loss makes Bitcoin investors cautious, so they forego the pleasure associated with gains. They typically short volatility by selling and fleeing to” safe” assets. Humans are inherently social, meaning they tend to follow the herd, even when it’s not in their best interest.
The trading decisions of cryptocurrency investors aren’t made in isolation, and people tend to ignore the individual characteristics of Bitcoin. Instead of placing emphasis and focus on the most recent information and news, you should take a step back and check out the trends. Only then will you understand that bias leads you to overreact to short-term market disruption at the cost of long-term profit.
Bitcoin Whales Advance as Stabilizing Forces
The silent celebrities of the cryptocurrency world, whales can set in motion a series of reactions, meaning their actions dictate trends and chart the course of Bitcoin. Big financial players battle for ownership in a setting of diminishing supply. The reason why they’re called whales is that their movements disturb the waters the smaller fish swim in. As a rule, someone who owns at least 10% of Bitcoin can be considered a whale.
A whale can be an individual, a company, an exchange, an institution, or the government. Whales trade millions of dollars, and when they buy into Bitcoin, this indicates a growth demand, so the rest of the cryptocurrency community tends to follow.
Sell-offs by Bitcoin whales overload the market with supply, therefore, contributing to a bearish sentiment and price drops. Bearish sentiment is basically a negative attitude regarding the value and future prospects of Bitcoin, encouraging investors to start selling. Whales impact liquidity and Bitcoin price stability, which explains why the cryptocurrency world is concerned about the influence of whales over decisions relating to the governance of tokens.
By managing supply and demand dynamics, Bitcoin whales restore the orderly functioning of the cryptocurrency market, enabling investors to navigate with a sense of stability.
How Do You Manage Bitcoin Volatility?
Bitcoin has a high investment return but bears high volatility, so an appropriate strategy needs to be taken to manage this degree of variation. Even if it’s not the quickest path to getting rich, HODLing is certainly reliable. You buy Bitcoin and hold it to profit from long-term value appreciation, so you’re not so active in transactions.
Throughout history, Bitcoin has demonstrated impressive long-term growth, rewarding patient investors. Think about playing the long game and HODLing. Don’t panic sell if the price of Bitcoin goes down. The fear of missing out and panic are two emotions you need to keep in check.
Set targets, goals, and rules so that you’re investing with confidence. It’s only a matter of time before the cryptocurrency market recovers to a point where you’ve bought in. You can beat volatility by opening a savings account, which gives you a chance to earn interest on your Bitcoins.
This investment strategy is much like HODLing, the only difference being that you earn passive income while you hold. Volatility is a double-edged sword, so you don’t want to risk your hard-earned money just to make some profit. Good risk management helps you avoid the turmoil caused by sudden price swings.
Bitcoin has received a lot of attention since it was first introduced in 2008 by Nakamoto. There are methods to reduce the extreme volatility of the cryptocurrency market, such as the introduction of stablecoins that peg against national currencies or commodities. We’ve never had an asset like Bitcoin before, so it’s impossible to assess how its price will move in the future.