Bitcoin and cryptocurrencies are a global phenomenon.

Far and beyond their rap in recent days, these financial solutions offer a unique value proposition.

Cryptocurrencies ride on public ledgers. Their distribution and lack of intermediation mean coins or tokens are censorship-resistant and global.

Besides, since private entities offer them, cryptocurrencies are excised and mostly excluded from the global financial systems.

However, this hasn’t prevented adoption.

In fact, cryptocurrencies like Bitcoin, despite being banned by countries like China, have grown in stature over the years.

Notably, following the ban in September 2017 by China’s PBoC, BTC prices rose to $20k.

It plunged in the next year to as low as $3.2k in what was dubbed the crypto winter before recovering in the next few years, topping $64k in Q1 2021.

The state of Bitcoin and why it is Unique

This gyration makes Bitcoin attractive to many.

However, to conservatives, Bitcoin and cryptocurrencies don’t qualify as money due to this inconveniencing property.

If volatility is the question, users must be cognizant of core factors on why Bitcoin prices fluctuate.

It is only natural.

Admittedly, Bitcoin can serve as money even with volatility and wide price fluctuation impeding adoption.

At the same time, Bitcoin has evolved to be a store of value, finding adoption even from some of the U.S. leading public companies like MicroStrategy, Tesla, and others.

Crypto hedge funds also take advantage of Bitcoin volatility to find indirect exposure to Bitcoin via complex derivatives products as those offered by Grayscale Investments to maximize yields.

From Bitcoin’s value proposition, it has found a deep market with derivatives products traded in various bourses.

Still, aside from the face value of Bitcoin, the primary drivers of Bitcoin’s price and, therefore, volatility and its fluctuation, matter.

It should be noted, as aforementioned, that Bitcoin is issued by a public system and not by a central entity like a central bank, for instance.

Therefore, even though there is a vibrant market that defines BTC/USD prices daily, macroeconomic metrics and gauges such as inflation, interest rates, GDP readings, employment levels, and more don’t apply.

Factors Affecting Bitcoin’s Volatility

Therefore, the first reason why Bitcoin prices fluctuate so heavily is because of the lack of regulation.

If anything, global regulation around cryptocurrencies, in general, is fractured. Countries like China, which first banned Bitcoin and cryptocurrency trading in 2017 before switching off miners in the second half of 2021, are not receptive.

On the other, some like Japan, Singapore, and the United States, are opting to formulate laws to support the growth and proliferation of cryptocurrencies and other blockchain-related creations.

Without sufficient regulation, cryptocurrencies and Bitcoin will remain under the whims of market participants who, in turn, due to supply and demand, determine equilibrium prices at any point in time.

Second, news events and development also influence the price of Bitcoin.

Encouragingly, over time, the narrative of cryptocurrencies and Bitcoin have been evolving positively.

In the early days of Bitcoin, critics said the technology-facilitated illegalities such as money laundering and terrorist financing.

This has changed as Bitcoin proved to be running on a transparent ledger.

Furthermore, cryptocurrencies enforcing KYC and AML rules made it incredibly hard for Bitcoin to be used in executing illegal activities.

Bitcoin’s properties, such as enabling cheap and instantaneous global value transfer, also promote financial inclusion.

Adoption from leading companies like PayPal also props the network.

Furthermore, the announcement from El Salvador that it was making Bitcoin legal tender was received positively, moving the market higher.

Why Volatility is Good for Traders

Bitcoin’s volatility is not necessarily bad. Indeed, there might be some form of anxiety that traders can overcome by preparation in the short term.

In fact, shrewd traders can thrive in a volatile market, raking huge profits by incorporating volatility into a trading strategy they understand best.

A volatile market is full of opportunities for exploitation, meaning various strategies can be employed.

Conclusion

Will Bitcoin be doomed to remain volatile forever? Not likely.

Bitcoin’s volatility has been tapering over the years.

The rate of volatility reduction mirrors adoption and realization from the masses that cryptocurrencies as an alternative to the mainstream aren’t going anywhere.

The more adopted Bitcoin becomes, therefore, the lower its volatility.