Most cryptocurrency investors and traders know that it is a highly volatile asset. Bitcoin is almost stable today, but many altcoins can fluctuate dramatically even within a single day.
On the one hand, this becomes a source of income - the profit depends on the difference between the buying and selling rates, but on the other hand, long-term investments look less reliable. But how many bitcoin holders managed to become millionaires?
In order to understand at what moment it is necessary to enter the exchange, and at what moment - urgently sell assets, we recommend to study the reasons why the rate of the cryptocurrency changes.
Bitcoin does not depend on the actions of politicians, but sometimes its price is influenced by the news agenda. Some incidents - inflating rumors of a financial bubble, for example - can really scare newcomers to the exchanges in droves.
One recent example is the news from Ilon Musk that Tesla will no longer accept cryptocurrency as payment for electric cars. Bitcoin has since fallen 17%, causing turmoil in the market and among holders of digital assets.
2. Market size
And the emergence of a large number of people on the trading floors leads to a change in the rate, too, in turn. The price of a cryptocurrency depends on supply and demand - just like the value of any marketable asset. If buyer pressure increases, the bitcoin rate changes, and vice versa. The influence of this factor, as one of the most global, will obviously decrease over time - in proportion with the growth of the market itself.
3. Whale activity
The owners of a large share of digital assets are called "whales," and their transactions always have an impact on the bitcoin exchange rate. Whether it is a rise or fall in the value of the cryptocurrency depends on the type of transactions of the asset holders.
Bitcoin, like gold, needs to be mined. And this resource is also limited - it is limited to a fixed amount of 21 million BTC. The value of bitcoin has not always been obvious to people, and a few years ago it was worth many times less than today. People's changing views on cryptocurrencies, coupled with comparisons to fiat money, had a major impact on bitcoin's value and continue to do so today.
You don't have to be an expert to predict the impact of factors on the cryptocurrency position. If news comes out about a change in bitcoin's legal status in any country, you can assume that the demand for it will become higher.
Knowing the factors of increased volatility as well as being able to analyze them can have a big impact on an investment portfolio and its contents. Understanding cause and effect helps to calculate the prospects of buying a cryptocurrency and making money from it.