Bitcoin has pretty much interesting and distinct characteristics, which makes it very thrilling to some individuals—notably to those who are very much engaged in the world of finance and technology, particularly in cryptocurrency.
This leading cryptocurrency is also known as good storage of value and is often related to gold. These two have good similar features, which include scarcity, utility, indestructibility, uniformity, acceptability, and divisibility. Both also are unlikely to degenerate or lose the shape of form.
The only difference between Bitcoin and gold is that gold can not be sent instantly and is not electronic; and bitcoin is not shiny, like literally shiny. With all these features mentioned, we can see that bitcoin also has the same functions as gold.
While there are various distinct features that Bitcoin possesses including its decentralization and convenience, one good attribute to consider and look closely into is its volatility, whether you are eyeing to buy bitcoin or if you are just interested in how it works.
As per Investopedia’s definition, volatility is “a statistical measure of the dispersion of returns for a given security or market index.” It was furthered that it is also the “range of price change a security experiences over a given period of time,” meaning that a price that remains stable has low volatility; and a price that erratically strikes up and down, or experiences a dramatic drop and hasty growth, has high volatility.
One analysis was done by a finance professor at Duke University about bitcoin’s volatility. In his study published in the Wall Street Journal, Campbell Harvey said that “Bitcoins have been 7.5 times as volatile as gold” and furthered that it is “more than eight times as volatile as the S&P (Standard and Poor) 500 over the last three years.”
Some studies also suggest that severe kinds of price changes that happen within a short interval are not equal with the ideal exchange medium for buyers or sellers, which may be a reason for bitcoins to be limited in being a beneficial means in dealings.
Crypto enthusiasts and wannabes might ask how is bitcoin valued and if this volatility feature is good or bad, most especially if one is thinking of engaging in the industry, may it be solely for holding coins, trading, or even investing.
Like every single thing that exists, the volatility of bitcoin also has its own sides—the ups and downs. The take on each situation or scenario may also vary with the person’s approach towards it.
Bitcoin has a maximum supply of only 21,000,000 BTC. This fixed supply of bitcoin brings a natural rise in its price whenever demand in bitcoin overtakes the number of those who are willing to sell.
As of July 12, 2019, bitcoin has a circulating supply of 17,813,100 BTC. Why is it relevant to our discussion on the advantages of Bitcoin’s volatility? Bitcoin also follows the supply and demand principle. In trading of bitcoins, volatility is treated a good thing. The phrase “buy low, sell high” is also very common when asked to explain it.
Bitcoin’s volatility makes it so enticing for investors and traders to join the cryptocurrency market. As more and more individuals are getting into the market, there will also be more chances of getting transactions that are either successful or otherwise.
There will be traders who might deliver good profits that will translate into a more stable price, and there will also be those not-so-good traders who might bid to their hard-earned investments goodbye. These traders can have the possibility of losing their coins for good and eventually fall out from the market.
There are strategies which are done by some traders, which include the buy-and-hold approach. This strategy suggests purchasing or acquiring stock and then holding them for a certain span of time.
This span of time may range from months to years and is considered a long-term plan. This approach is usually used in collecting their company’s cumulative growth. The buy-and-hold strategy also implies that market changes or fluctuations bring returns over a period of time.
For investors and traders who opt to choose short-term, the volatility of bitcoin creates an opportunity to make profits by correctly predicting the short-term trends of bitcoin.
For those who are not a fan of the waiting game and are not into buy-and-hold strategy, volatility is considered to be more critical. While long-term traders hold their coins for a span of months to years, short-term traders are dealing with a speedy interval of just second-to-second or minute-to-minute shifts.
There is also such a thing as working with quite longer span like days or weeks. However, while hitting the right prediction on bitcoin’s trends might be good, the entire process of it is certainly exhausting.
This in effect causes some traders and holders to feel FOMO (the Fear of Missing Out) most especially when deciding whether or not to buy or sell their bitcoins. When bitcoin’s price sweeps upwards, people can get intensely thrilled and enthusiastic about it, notably those holders who are so into the business. On the other hand, those who aren’t holding some coins might have regrets.
When Bitcoins price downslides, holders may then feel anxious and may also have the regrets of not selling their coins immediately.
These are just some of the potentials and drawbacks of bitcoin’s volatility. So, is Bitcoin volatility good or bad? Once more, the decision lies within the person depending on his or her take on it. As Bitcoin gets more and more popular, it can’t be denied that more people will enter the crypto scene, which will also, in time, turn bitcoin’s price at the top.
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