There is no denying that cryptocurrencies, including Bitcoin, are volatile. For example, in the first half of 2021, Bitcoin doubled in value and reached an all-time high of $64,000. However, during the summer months, it fell back to less than $30,000. Then in November, the price of Bitcoin rose again; this time to $68,000 (for another all-time high) to fall below $35,000 in January 2022.
And that’s just one example. Since its launch in 2009, Bitcoin has had an impressive price history and has seen more than a few notable falls.
Volatility is essentially a given across all types of cryptocurrencies, given the general atmosphere of legal, political, institutional and technological uncertainty that hovers around them. Bitcoin was the first cryptocurrency ever created. Not only is it the most expensive crypto, but it is probably the most visible and has become the flagship for the entire crypto/blockchain space. Arguably, Bitcoin could be the coin that led the government, the public, and traditional financial services companies to take cryptocurrencies seriously. Millions of ordinary people increasingly see Bitcoin as a tool for investing, trading and saving. However, before investing in a cryptocurrency, an investor would want to seriously consider its volatility.
Volatility is neither good nor bad.
Another thing is that if this volatility causes the price of Bitcoin to drop dramatically, crypto traders, holders, and investors are likely to feel FOMO, or the fear of missing out. Cryptocurrency enthusiasts may struggle to decide whether or not to give up their hard-earned coins or buy and hold more.
If the price goes up, Bitcoin holders and traders can get intensely excited about it – especially those who are holding huge amounts of BTC at that very moment. Meanwhile, those who don’t have enough coins in their hands may find the situation deplorable.
On the other hand, if the price drops significantly, holders with large amounts of BTC may also regret not selling their coins right away.
Rather, it is a phenomenon that exists in all financial markets for different reasons. Cryptocurrency skeptics may see cryptocurrency volatility as a danger sign, a reason to stay away. However, sometimes volatility can benefit a new high-growth asset like a cryptocurrency.
That’s what’s happening right now, with traders looking to profit and wealthy venture capitalists flocking to cryptocurrencies. Venture capital funding can help establish new start-ups and support technical innovation. And new money flowing into the sector often brings increased liquidity, which contributes to healthy financial markets.
The FOMO factor we talked about above and simple curiosity can also have a positive effect on cryptocurrencies. For example, some large traditional financial services institutions (TradFi), which were earlier opponents of cryptocurrencies, are now showing interest in the crypto sector.
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Disclaimer: Crypto products are unregulated as of this date in India. They could be highly volatile. At Unocoin, we understand that there is a need to protect consumer interests as this form of trading and investment has risks that consumers may not be aware of. To ensure that consumers who deal in crypto products are not misled, they are advised to DYOR (Do Your Own Research).