What makes Bitcoin volatile?

During the Great Crypto Crash in 2018, bitcoin fell by 80% from its peak, having lost almost one-third of its value. The significant reason for this crash was fear, inexperience, lack of regulations, and lack of knowledge about the crypto market among the investors.

“Volatility is a measure of how much the price of an asset has moved up or down over time. Generally, the more volatile an asset is, the riskier it’s considered to be as an investment — and the more potential it has to offer either higher returns or higher losses over shorter periods of time than fewer volatile assets.” —?Coinbase.

6 Key Reasons Behind Cryptocurrency Market Volatility

Small market capitalization

The current market cap of Bitcoin is $528.60B which is very small when compared to stocks. The same amount of money that won’t affect the stock market can cause a huge imbalance in cryptocurrency. So the smaller size of the cryptocurrency market makes it extremely volatile.

News Channels

Media channels have a huge impact on the crypto market in terms of crashing prices or creating hype for investments. Media attention in social networks, i.e. Twitter, Reddit, and Discord are partial drivers of sentiment on crypto prices.

Market sentiments

There is an association between investors’ sentiment and the market prices in a way that when these opinions involve positive sentiments, stock prices in the market tend to rise. So, examining investor opinions through sentiment analysis can provide valuable insights into the crypto market’s future.

Government regulations

In a?June note, analysts at Morgan Stanley suggested that government regulation might be a factor influencing bitcoin prices. According to them, “governmental acceptance would be required for this (bitcoin’s price) to further accelerate, the price of which is regulation.”

Elon musk effect

In early February 2021, BTC hit an all-time high and broke the 44,000 USD mark for the first time when Elon Musk, founder of Tesla, an electric car and clean energy company, announced that they’d be accepting BTC in exchange for their products, making them the first major automaker to do so.

Manipulation

Given the other factors, there’s a tendency for people to acquire a cryptocurrency and then attempt to manipulate its price by spreading rumors or generating false volume with wash trades. This can cause rise/fall cycles as the manipulation first generates a fear of missing out and then generates a panic fear of a serious crash.

The number of crypto holders sharply rose despite crashing markets

Five key tips to follow when investing in the crypto market

Tip#1 Choose a reliable & trustworthy exchange.

Cryptocurrency exchanges are frequently hacked or can be used to mislead investors. Therefore, ensure that you open an account with a big exchange with a proven track record and that you have insurance coverage in place in case of a hack.

Tip#2 Do your research

Use platforms such as Tradingview, and Cointelegraph for making technical and fundamental analysis. Investing your time in research helps you boost your chances of success significantly.

Tip#3 Diversify your portfolio

Crypto is not a get-rich-quick scheme. Since it is highly volatile it is important to diversify across various asset classes such as stocks, fixed deposits, mutual funds, debt funds, etc

Tip#4 Timing the right entry point

Crypto investing is about managing high risk and maximizing returns. Investors should use technical analysis to predict future prices of crypto depending on its historical performance, trade volumes, and other indicators.

“A dip is like a beautiful red rose, when you touch it you have the chance to multiply your portfolio” — Rudraksh Kapoor, Founder ‘CrypVlogs’

Tip#5 Be cautious of scammers.

Fake airdrops, pump-and-dump scams, and messages from social media accounts should all be avoided. Scammers also use imposter websites to scam investors.

Before submitting your information, double-check the exchange’s URL.

More pain ahead for Bitcoin investors?

Price is overbought making lower highs and lower lows at 4 hours. We might see continuous downfall before any major upmove. Bitcoin appears to be heading toward the $25,000-$26,000 price range, depending on its potential breakdown point from what appears to be a descending channel pattern.

In conclusion, investing in crypto may be a volatile journey, but it is also clear that investing in cryptocurrency can provide some of the best and most exciting investment opportunities.

?? Disclaimer ??

(Any views expressed in below are the personal views of the writer and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)