There can be many reasons why Bitcoin is falling today. However every investor in Bitcoin or any other crypto should be aware of huge prices swings and high volatility.
So why is bitcoin so volatile? One of the main reasons is that the crypto market in general is very small compared to the traditional forex currency markets. The total cryptocurrency market cap is at its highest point at $831 billion, but the forex market cap is more than $5 trillion. This means that it takes less to move the market.
While cryptocurrencies easily can move up or down a 5% on a daily basis, 2% moves in forex markets would be considered as a high volatile day.
Just a few years ago the price of bitcoin could easily go up or down 20%. While that doesn’t happen that often any longer, it still does happen. Latest 12. March 2020 where bitcoin went down by almost 50% in 24 hours. Drops like these don’t happen that often but they can happen and this is because the crypto market cap is so small and thereby easier to move or manipulate.
There are many factors that are in play when Bitcoin price is falling. We will discuss a few of them.
In the late 2017 where Bitcoin was surging to $18.000, every time a small news came out about a bitcoin, it would make the price move higher or lower depending on the news. The reason was that people were looking for every reason they could find to either buy or sell. Because of the hype at that time large amounts were being sold and bought.
In that same period of time fake news was also produced to drive the price higher. Pictures of Coinbase’s platform were “leaked” where it allegedly was listing Ripple XRP. The pictures would show Coinbase interface with Ripple on the platform. These rumours made the price of Ripple surge to new all time highs but in the end it turned out that the images were all fabricated.
Another way that could impact Bitcoin price to drop would be if some of the people that hold large amounts of Bitcoins decide to sell. When selling large amounts of bitcoins there should obviously be some to buy them on the other side. But as previously mentioned the Bitcoin market cap is not as big as other markets. Therefore if bigger amounts get sold then the price can drop significantly.
Because Bitcoin is a digital currency, the crypto community also has the means to monitor transactions between wallets. This is also the case for coins that have been involved in hacks etc. This leads to many different theories in the community if these hacked coins will be sold off and drive the price down.
With the recent bitcoin halving the mining rewards got cut in half. However the cost of mining remains more or less the same. This will leave the miners with no other choice than selling their Bitcoins as they have to pay their bills. Thereby the price could go down if there are not enough buyers in the market.
There can be many reasons for the price of Bitcoin to fall, but just as many for the price to go up. If you in general believe that Bitcoin and the crypto markets will go up long term, then there is no reason to panic when the price drops. Smart investors use price drops as an opportunity to invest. If price drops of 20% or higher keeps you awake at night then you should probably not invest in Bitcoin or any other cryptocurrencies.
If you do consider investing in Bitcoin then one of the smartest ways to do so is to use dollar cost averaging which are recurring purchases where you buy small amounts on a regular basis.
Investing in cryptocurrencies should be carefully considered as it is seen as one of the most risky investment assets.
Below you see a list of recommended Bitcoin exchanges.
Bitpanda is the leading crypto exchange in Europe with more than 1 million users. You can trade more than +30 cryptocurrencies, tokenized stocks, gold, silver and other metals.