Welcome back to our last post in our blog series: 11 Myths of Bitcoin. Finalizing the series with Myth…
#11: Bitcoin is too volatile.
The value of Bitcoin has been indisputably volatile since its inception. Rising from only a few cents in 2010 to over $1,200 in 2013 then dropping down to $400 where it has remained for much of 2014 to around $250 for 2015. A large part of this volatility comes from speculative investors. However, as a new concept, it is finding its way. This is to be expected. As market acceptance increases, as more investors become involved in this asset class, as more merchants begin to accept Bitcoin, the market will mature and volatility will decrease.
The current regulatory landscape of Bitcoin is uncertain. The price drop that occurred in December was widely believed to be in part caused by negative statements regarding Bitcoin from Chinese regulators. In one day, the price of Bitcoin dropped 50% upon a release that China was seeking to ban bitcoin which was later determined to be false. It is believed that as the upcoming years unfold, all major countries will issue their rulings on how Bitcoin will be treated which should provide stability from this uncertainty.
Bitcoin has a small market cap of only around $5 billion. Compared to other industries, this is extremely small. Due to this small size, it is very easy for buy and sell orders which would be considered insignificant to affect the market. For example, a sell order placed in October, 2014 for 30,000 bitcoins with a value of around $9 million caused the price to cash from $400 to $260. The market quickly recovered but not without demonstrating that the Bitcoin market is truly in its infancy.
While other currencies have a total daily trade volume of trillions, Bitcoins daily trading volume is only around $50 million to $100 million on the highest trading days. This lack of liquidity is one of the primary concerns of professional investors researching Bitcoin but as the market cap grows and trade volume increases, the concern will likely become irrelevant.
In the entire Bitcoin ecosystem, there are only a reported 1-2 million active users which makes it very easy for such a small number to be influenced by media reports both positive and negative. As the user base becomes larger, it becomes less likely that large groups will be influenced by media coverage which will naturally decrease the volatility overtime.
Thank you for reading our blog series. It was the first of it’s kind and we hope to bring you many new articles in the future! If you have any questions or suggestions for upcoming articles, feel free to post those!
