bitcoin volatility

3 Reasons Why The Volatility Of Bitcoin Cannot Be Chalked Up To Typical Currency Risk

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With an adoption rate of anywhere between 1 and 10 million people, Bitcoin is fast becoming a household topic. But for some, this online currency might just be a little too hot to handle. There are a number of different coins to choose from and the playing field for cryptocurrencies is ever growing. As yet, there is no insurance on the market to manage the currency risk. Let’s find out why.

The New Kid On The Block

Often referred to as an investment, Bitcoin is a hot topic around the barbeque. Ask someone to explain it and the response – more often than not – is a blank stare. This isn’t because there is a lack of interest, but rather that the concept behind it is still so new. Although it’s been around for close to a decade, Bitcoin does not follow the same framework as ordinary currencies, which means that the fluctuations in pricing still needs to be established. Traditional currencies across the globe have had decades if not centuries to set the foundation and make their mark. Comparing the price fluctuations between Bitcoin and other, more traditional types of currencies can cause frustration.

Bitcoin Is Not Actually A Currency

Bitcoin is not a currency. Although the name and description both allude to it being a currency, a more accurate description would be that it’s a commodity. It’s the gas that keeps certain programs running and the recent term coined that it’s “mined” paints a clearer picture of how it works. As with other commodities, the volatility is linked to purchase power. The supply and demand and to the value of its applications. It’s not like cards or cash which are currency representatives backed by government and central bank policies, but rather Bitcoin is like the plastic that makes the credit card or the metals that make the coins. It has more in common with ancient gold coins which gained their value from the weight and quality of the gold rather than the value of the economy.

It Took Ages For Governments To Come On Board

For years, governments were skeptical, if not hostile, to cryptocurrencies. Intense bouts of regulation ensued, which just ended up placing the general public on high alert to this so-called money laundering enabler. Big banks were the frontrunners to the Bitcoin bans, due to fear that a competitor in this sphere posed. Now banks are some of the biggest investors in blockchain technology, realizing that it’s important to remain relevant in a constantly evolving market. Did the speculation and bad press hurt the pricing? Possibly, as changing markets definitely affect the level of volatility for cryptocurrencies.

When viewed as a commodity, it’s easier to understand the volatility of Bitcoin and others just like it. With that in mind, it’s important to realize that a total collapse is unlikely, however, price changes will happen. Tread the Bitcoin waters carefully, as the higher the potential for gain, the higher the risk.

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Lucy Ellis

Lucy Ellis is a professional freelance writer with many years experience across a variety of sectors. She made the move to freelancing from a stressful corporate job and loves the work-life balance it offers her.