In the crypto world, price fluctuations are inevitable. If you are one of the cryptocurrency investors, you might already be aware of the unexpected shifts in market price value. Bitcoin can reach all-time highs and then falls at the end of the day.
This article will enable you to understand some factors contributing to Bitcoin and other cryptocurrency’s volatility, and also some tips on how to deal with it.
Why are Bitcoin and other cryptocurrencies volatile?
There are numerous reasons why the cryptocurrency is volatile. According to experts, one of the primary reasons for Bitcoin’s price fluctuations is its limited supply. But its scarcity is one of the factors that makes it more valuable. There are approximately 21 million bitcoins ever produced, and 18.7 million have already been mined and are currently under circulation.
Another reason why Bitcoin is so volatile is because of its decentralised feature. Its lack of central bank control contributes to its price since no government can step up and subdue its volatility. Also, bitcoin is still fresh and new in the market.The cryptocurrency entered the market only 13 years ago which means it is still under price discovery period with undefined terminal value.
Media also plays a major role in bitcoins market price. It can either go up or down depending on how advantageous and disadvantageous it was globally portrayed. For instance, Elon Musk’s backing of bitcoin has greatly moved its demand. On the other hand, China’s cracking down and banning bitcoin has also affected its reputation in the global market. Though bitcoin was already recognised as a new form of value, its real terminal value remains undefined.
Price volatility may sound bad, but this matter is the key to high investment returns. You can either choose a long-term or short-term investment method depending on your ability to manage risk. These methods may render considerable profit as long as you familiarise yourself with your chosen strategy and apply it effectively when you trade in any crypto platforms like Bitcoin Profit.
How to deal with volatility?
Simple. Just get used to it. Price fluctuations can occur multiple times like a pattern. Your goal as an investor should be to achieve a more mature level of adoption. Just like other investments, crypto is also subject to price swings. Experts who have been in the industry for a long time always recommend making investments for a longer time frame. It is also crucial that your portfolio must be diversified in order to prevent great losses. Volatility may be a challenge, but for some, it is a blessing in disguise. If an investor has a high tolerance and has the ability to manage risk, enormous opportunity awaits.
Over the years, Bitcoin has dominated the market not only by private individuals or retail buyers but also by huge corporations and institutional investors. This transformation has led to the overall stability of the cryptocurrency. It may somehow add up to its legitimacy and contribute to the decrease of its reputational risk.
If you are one of the individuals who can’t handle risk, you may want to try out converting your crypto or bitcoin assets into stablecoins. In layman’s terms, stablecoins is a type of cryptocurrency backed by fiat money or external assets like gold. One of the well-known stablecoin is the TETHER(USDT). In this case, you can be confident about your investment without worrying about price instability. However, don’t expect high returns for your money. The exchange rate for this stablecoin is 1 USDT=1 US dollar.
The key to success in the crypto world is full understanding and acceptance of its weakest point. Short term trading can lead to psychological torture given crypto’s constantly changing market price. It is always recommended by experts to hold your digital currency for a longer period of time before selling them. A long-term strategy may help ease emotional highs and lows. However, if you are into a short-term investment, the ability to predict prices can be beneficial. If you take advantage of the price swings and can make accurate predictions, you may quickly gain profit.
Moreover, do not invest in something you can’t afford to lose. In order to protect yourself from volatility, allocating your funds in a diversified portfolio may help. It is a matter of management and discipline.
In general, volatility isn’t always a bad thing. But the greater volatility, the higher the risk, and not everyone is willing to take that risk. Given the discipline, accurate predictions, and the right strategy, you may be able to protect yourself and make the most of your digital investments.