Every time we talk about the possibility of cryptocurrencies as mediums of exchange, store of value, or assets, we also have to consider that they might be too volatile for these functions. Price fluctuations are attributable to numerous different factors.
While this might be true, there might also be a good side to the high price volatility of cryptocurrencies. Investors, in particular, day traders, who are looking to make profits and grow their worth are provided with opportunities as well. Needless to say, people have been using volatility to their advantage. They make the buy when the price is low and then sell when the price is high.
Highly volatile asset class
Traditional investors do not like Bitcoin because its price has been swinging from one extreme to another. Bitcoin’s price can rise to a peak and then experience a crash. This has been happening ever since Bitcoin was founded in 2009.
However, it is important to know that there has been an improvement from the initial day. In 2011, Bitcoin’s price went from $32 down to $2 which is a drop of 94 percent of its value. There have also been some periods of low volatility, but these have been few and without any guarantees. Bitcoin has been called digital gold. Considering the volatility, it should look more like stock markets on steroids.
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Volatility is an opportunity for traders
For short term investors and day traders, volatility provides them opportunities to make profits. Traders can make huge profits by guessing the short term trends in the Bitcoin market. Investors may use a buy and hodl strategy in order to make profits in the long run.
With the introduction of automatic trading platforms and robots, trading profitably has become much easier. These robots will perform trades at the right time automatically on behalf of the owner. People have started using these robots and platforms, like the https://bitcoinstorm.io/, to make use of the opportunities that are made because of Bitcoin’s volatility.
Not good for merchants
No matter how tech-savvy merchants are, they will most likely be hesitant in accepting Bitcoins for their services and products. They are mainly concerned with providing services and goods, not with managing the volatility of the Bitcoins market.
However, it is important to note that these merchants work on thin margins and do not appreciate the one to two percent transaction fees that are imposed by credit card companies. It is also important to remember that the price of Bitcoin can change substantially between the time the customers pay, and they sell those Bitcoins in order to exchange for their local fiat money. This price change could be enough to wipe out their entire profitability.
Volatility unavoidable during growth
Bitcoin is considered to be a relatively new asset class as it was only introduced to the world in 2009. Even though the degree of awareness about Bitcoin and other cryptocurrencies among the general public has increased over the last few years, still only a small number of them hold significant amounts of Bitcoin. Furthermore, most institutional investors have been avoiding Bitcoin, keeping in mind the risks associated with Bitcoin and its unregulated nature.
Most experts have a different opinion. They think that an increase in Bitcoin adoption is coming which will cause an increase in the demand and eventually Bitcoin’s price can rise up quickly. It is equally important to know what will happen when there is negative news about cryptocurrencies or Bitcoin in particular. For instance, if a country decides to shut down cryptocurrency exchanges, many holders of Bitcoin will want to sell which could result in a rapid price crash.
Unless Bitcoin’s liquidity improves substantially and people start using it widely by accepting it as a standard payment method, there may always be volatility in Bitcoin price.
