Cryptocurrency Check: Why Are Bitcoin Prices So Volatile? MintGenie explains


About six years ago, the price of a bitcoin hovered around $580 (equivalent to almost 40,000) as of August 2016. Additionally, it was selling for around $11,200 (almost 8.17,000) in August 2020 before climbing to over $37,600 (almost 28 lakh) in August 2021, registering a phenomenal growth of around 236% in just 12 months.

Now, in September 2022, it has now fallen to $20,210, reporting a massive drop of 46% in just over a year.

Investors often wonder why the price of bitcoin fluctuates so wildly. The unpredictability of the price makes it “unreliable” as an investment among a section of investors. But to understand why its price changes so quickly, we need to know the reasons behind this cryptocurrency and, above all, its demand.

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The reasons for the spike

One of the main reasons for the massive increase in its price is that established institutions such as pension funds and investment trusts have now started investing in it. Until 2017, bitcoins were invested by individual investors. But with greater acceptability, many billionaire investors and financial institutions have now spoken openly in favor of bitcoin and its future. For example, JP Morgan started offering bitcoin funds to its wealthy customers and also created a digital coin JPM Coin to make payments using blockchain technology.

Musk effect

When electric car maker Tesla, led by Elon Musk, purchased bitcoins worth $1.5 billion in February 2021, the price of one bitcoin hit an all-time high of $44,000 (about 33 million). Musk later dragged his feet on allowing Tesla to accept bitcoin payments by voicing environmental concerns that bitcoin mining uses large amounts of electricity. However, he announced again in July 2021 that Tesla would likely accept payments for Tesla in bitcoins, again pushing bitcoin prices.

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Greater acceptability

Vendors and merchants have also started accepting bitcoins. Paypal, Starbucks, BMW, Expedia, and Zinga, among others, now facilitate bitcoin transactions. Any positive statement from central banks in favor of blockchain technology is likely to tip the scales in favor of bitcoins.

El Salvador became the first country in June to accept bitcoin as legal tender starting in September 2021. In fact, almost no institution or country is opposed to blockchain – the technology behind the creation of bitcoin.

Thus, bitcoin prices have recently reached new all-time highs. Some have invested in it for fear of missing out, while a few others are still uncertain about its future. Whichever side you are on, you should exercise caution before committing large sums to it.

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