Why is Bitcoin's Price Volatile and What to Expect in the Future?

Proponents of Bitcoin view it as a diversifying asset in balanced portfolios, but it did not fare any better than stocks at the start of the coronavirus pandemic. This is because investors sold everything in a panic. However, the interest in the new futures-based Bitcoin ETF shows that Bitcoin is becoming more widely adopted, and experts predict that as more people adopt Bitcoin, its price will continue to rise exponentially. Extreme swings up and down are relatively common in cryptocurrencies, and investors can expect them to continue in the future.

Bitcoin has experienced both astronomical growth over the past decade and significant sell-offs at various times. While many bulls point to its past performance as a sign that the cryptocurrency will continue to grow in the future, that may not happen, according to Yermack. Nevertheless, investing in cryptocurrencies has become increasingly popular, especially because of how easy it is to buy into them. Even some financial advisors are beginning to see digital assets as tools for building personal wealth.

However, because cryptocurrencies are risky assets, financial experts often advise that people who want to invest in Bitcoin should allocate a small amount of their portfolio that they are willing to lose all of it to Bitcoin. He added that people who are close to retirement, those who will need the money they invest in the short term or those who are looking to trade frequently for profit might reconsider Bitcoin as an asset for those purposes. If you are going to allocate part of your portfolio to a speculative asset such as Bitcoin, take a disciplined approach and impose buying and selling rules, says David Sacco, a professor of economics at the University of New Haven. One way to protect yourself from selling at a loss is to commit to holding the asset for the long term, similar to other stocks and bonds in your investment portfolio. During the last year of COVID-induced market mania, cryptocurrencies have risen so much that Bitcoin has quintupled, while many other cryptocurrencies have risen much, much more, that even reluctant Wall Street institutions have begun to tiptoe into the arena.

The biggest force was the increasingly certain expectation that the federal government will approve the first Bitcoin-based exchange-traded fund, which will allow retail investors to buy more easily, even for 401(k) accounts. Lately, Bitcoin has become a rollercoaster, rising and falling sharply based on various news stories. Datatrek Research co-founder Nicholas Colas believes that the decline in hype may prevent Bitcoin, in particular, from reaching such lofty prices again. The Economist recently calculated that “90 per cent of the money invested in Bitcoin is spent on derivatives such as 'perpetual' swaps that bet on future price fluctuations that never expire”. Currently, most trading experts agree that the price of Bitcoin is destined to rise over the next two years.

It is no secret that one of the favourite things to do for many Bitcoin lovers is to make predictions about the price of their favourite cryptocurrency. Many investors see Bitcoin's price swings as part of the game, but “volatility is hard for individual investors to handle” says Noble. The price of Bitcoin and other notable digital assets fell sharply in early December, creating a mini-price crash.

Faisal Abdul
Faisal Abdul

Extreme internet specialist. Wannabe twitter junkie. Friendly zombie geek. Freelance twitter buff. Professional student. Passionate tv evangelist.

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