Why does the Bitcoin price sometimes change sharply?
You may have heard the price of Bitcoin and other cryptocurrencies called ‘volatile’. But why is this and is it true?
Compared to other assets such as gold, which has been around for centuries as an investment tool, Bitcoin is still in its infancy, having only turned 14 in 2022. This means a few things for the torchbearer of cryptocurrencies.
The amount of money globally invested in gold, for example, is many times that of Bitcoin, which makes Bitcoin more susceptible to the whims of buyers and sellers. Think of it this way. Say there’s a pizza cut into four slices which is divided among four people, each wanting to buy a slice. If two decide to return their slices to the box on the back of a rumour about the cheese being bad, half of the market would have returned their share of the pizza, most likely causing the other two to follow suit, completely eviscerating our pizza market. If there were 10 people sharing the pizza, things could have turned out differently. Maybe only three returned their slices while the rest held on to see if the rumours were indeed true. Maybe they bought the slices that were going.
Bitcoin’s relative youth means it is still winning the confidence of buyers and sellers and this is changing as more people invest in the cryptocurrency. If it continues to grow, price movements should start to flatten out and become more predictable.