Satoshi Nakamoto made bitcoin public in 2009, and it was headed on the road to stardom in 2010 as a trading exchange listed this currency for the very first time.
Government authorities control the standard fiat currency, and to this extent, volatility in fiat currency is significantly less.
Undeniably, bitcoin whales and even seasoned traders earned massive money from bitcoin just because of its immense volatile nature. Still, it has also been a challenge for people who wish to use this currency as a monetary system. Moreover, it is the mere reason why some businesses prefer not to introduce bitcoin in their payment system. If you are planning to trade Bitcoin, you may consider knowing about the Bitcoin Fluctuations.
Why does Bitcoin fluctuate?
Let’s try to understand why bitcoin is so volatile and how its value can be reduced while retaining its primary features.Fiat currency volatility is only a result of supply and demand, but there are other factors at play in the case of Bitcoin that also contribute to its volatility.
The reason why bitcoin is so volatile
- Lack of clear regulations: Though bitcoin has been legal in many countries and no laws prohibit its use, some authorities still have reservations regarding cryptocurrencies due to the lack of proper guidelines and regulations. Due to such facts, sceptics avoid taking the risk and sit on the edge. Moreover, this lack of clarity creates a lot of volatility.
- Lack of understanding: As bitcoins keep growing, there is a lack of proper understanding of them, and the government often accuses bitcoin transactions of instability in the financial sector.
- 3) Technological problem: As bitcoins are passed from one hand to another by computer, these bitcoin transactions are recorded in a public ledger called a blockchain. When these records are kept in public, it is difficult for the owners to hide their transactions, making bitcoin a luring target for hackers and scammers.
- 4) Lack of awareness about bitcoins: Many people don’t even know that Bitcoin has been used for payment purposes, and it’s still not mainstream. The day when bitcoin is recognised as a legitimate payment option everywhere will be terrific, but it will take some time for people’s perceptions to alter.
- 5) Supply demand: As bitcoin is decentralized and there is no third-party involvement when a transaction occurs, it’s directly between two parties and the transaction record is kept in a public ledger. Therefore, when the supply of bitcoin increases, the value of bitcoin decreases just due to a simple economic supply-and-demand mechanism; however, this has not happened in the last two years.
- 8) News: News like the ban on cryptocurrencies in countries like China has a lot of effect on prices as they represent a considerable share of the overall trading volume.
How to deal with the volatile nature of bitcoin?
1) Use bitcoin as a monetary system: You have to ensure that the entire supply chain of your business accepts bitcoin payments. Then, you can promote your business by offering a discount or gift card to the consumer when they pay with bitcoin.
2) Get bitcoins from people who hold them: You can also get bitcoins from people who hold them and purchase from your business. It leads to more demand for currency and will stabilize the value.
3) Find ways for price stability: In order to avoid excessive volatility, traders should convert their funds into bitcoins in order to utilise them as money. This would promote price stability and improve the environment for companies to begin accepting bitcoin payments.
4) Improve trading volumes: Most of the trading volume is generated in Asia, and China accounts for half of it. If these regions start accepting bitcoin payments more effectively with proper regulations, the value of bitcoin will stabilize.
5) Adopt new technologies: There are newer technologies like Lightning Network, which can have a use case to facilitate fast transactions; this technology will also lead to price stability. However, adopting new technologies will lead to changes in the business model.
6) Educate the public: The government should educate the public about Bitcoins, which will help overcome the lack of awareness. People may effectively use bitcoin in place of cash for everyday transactions if they are adequately informed about it and how it works.
7) Make real Bitcoin money: To make Bitcoin real money, businesses must accept bitcoins as a payment method, and at least it will bring some stability in prices.
8) Adopt cryptocurrencies: Government should also start using cryptocurrencies like bitcoins to make transactions; when businesses see the government using bitcoin for their transactions, they will also use it without hesitation.
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