A variety of factors causes variations in the Bitcoin spot price on Bitcoin trading exchanges. The Volatility Index, also known as the CBOE Volatility Index, measures volatility in traditional markets (VIX). Because cryptocurrency as a real asset class is still in its early stages, there is no universally accepted index for Bitcoin volatility. However, we know that Bitcoin can experience volatility in the form of 10x price changes compared to the US dollar in a relatively short period.
- Negative press affects ownership rates.
Government officials’ geopolitical accidents and claims that Bitcoin is most likely to be monitored are among the news events that frighten Bitcoin users. Many bad actors were protected by Bitcoin’s early adopters, resulting in headline news stories that stoked investors’ worst fears.
The bankruptcy of Mt. Gox in early 2014, and more recently that of the South Korean stock exchange Yapian Youbit, have made headlines in Bitcoin news, as have other high-profile uses of Bitcoin in drug deals through Silk Road, which resulted in the FBI shutting down the market place in October 2013.
All of these events and the resulting public hysteria caused the value of Bitcoins to plummet in comparison to fiat currencies. Nonetheless, Bitcoin polite investors saw both of these developments as evidence that the market was expanding, driving the value of Bitcoins vs. the US dollar significantly higher in the short time following the news.
- Bitcoin’s recognized worth changes.
The recognized store of value vs. fiat money is one reason why Bitcoin can shift against fiat stock markets. Bitcoin shares specific characteristics with gold. It is governed by a design resolution by the core technology developers to limit the amount of BTC that can be created to a set amount, 21 million BTC. Since this differs significantly from fiat currency trading, which is managed by government officials that want to maintain low inflation, high jobs, and proper growth through investment in capital assets, traders may designate more or less of their purchases directly into Bitcoin as economies built with fiat values show signs of power or weakness.
- There is an excessive amount of misunderstanding about Bitcoin’s store of value and value technique.
Bitcoin’s unpredictability is fueled in part by contrasting interpretations of the cryptocurrency’s implied significance as a store of value and method of value transfer. A store of value is an asset that can be readily useful in the future due to some predictability. A valuable store of value can be easily stored and exchanged for something better or more useful in the future. Everything or concept used to move property in the form of properties from one person to another is referred to as a value transfer technique. Bitcoin’s unpredictability makes it an enigmatic store of value at the moment, but it ensures near-frictionless value transfer. Since these two drivers of Bitcoin’s current spot value vary from the US dollar and other fiat foreign currencies, we can see that Bitcoin’s value can fluctuate in response to news events in the same way that fiat equity markets do.
- The currency’s massive owners have a small option value.
Bitcoin’s unpredictability is influenced to some extent by holders of large percentages of the currency’s overall remarkable float. For Bitcoin traders with recent holdings of more than $10 million, it isn’t easy to see how they could convert such a prominent position into a fiat position without dramatically shifting the market. Since Bitcoin’s volume is comparable to that of a small-cap fund, it has yet to reach the mass market ownership prices needed to provide option value to large holders of the cryptocurrency.