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What Makes Bitcoin Volatile: Is It Riskier Than Stocks?


Apr 18, 2022

Bitcoin was launched in the year 2009. It was one year after, in 2010, when it finally started to gain popularity among investors. Since then, it has continued to grow in value and popularity. Yes, it may have its highs and lows, but Ethereum Rival is still the most traded cryptocurrency.

Besides high prices, bitcoin also has high volatility, making it riskier. But there were instances when bitcoin proved to be less volatile than the S&P 500. But before addressing that, let’s first focus on the factors which add volatility to Bitcoins.

Why is Bitcoin volatile?

When one says volatility, they refer to the price volatility; how quickly does the price of the commodity or assets move up and down determines its volatility. If the fluctuation in the price is high, then it is a volatile investment and vice versa.

Bitcoin gets its volatility from four main factors, demand and supply, government regulation, investor sentiment, and media influence.

Bitcoin demand and supply

Like any stock, asset, or commodity, the pricing of bitcoin also depends on its demand and supply. Bitcoin has a limited number of coins in the market. The value of these coins depends on the number of coins circulating in the market. The closer it gets to its limit, which is 21 million, the higher the price will be.

Government Regulations

Any rumor or news about bitcoin regulation can influence its price. Rumors about a government banning the currency or referring to it as illegal can also cause volatility. Though many times, the effect is short-term, the heavy price movement can cause losses to investors.

Investor Sentiment

The actions and sentiments of the investors, especially the HNIs, have a significant impact on the market value of the asset or commodity. The bitcoin investors who have holdings of tens of millions or more are said to be Bitcoin Whales. When these whales start buying more coins, the price increases, and the value plummets when they sell them. So, the volatility of bitcoin is partly driven by these large investors.

Media Influence

Another factor that impacts the price of bitcoin is the media news. To attract viewership, the media outlets often present information with heads like “expert advice .” Such a piece of news is usually not verified. Some investors even try to create a buzz about bitcoins so that the market can turn in their favor. Thus, even media can also greatly influence the bitcoin volatility.

Bitcoin is less volatile than S&P 500

There is no denying that bitcoin is a highly volatile investment asset, but historically, it has been noted that it appears to be less volatile than stock (S&P500).

It was seen in a recent study conducted by VanEck that, while comparing the stock index with the bitcoin in 90 day period, 112 stocks were more volatile than the cryptocurrency. It seemed less volatile when compared on a YTD basis as 145 stocks showed higher volatility.

In the long term, it is seen that there is a very low correlation between stocks and bitcoin. Thus, if one plummets, it will not necessarily impact the value of the other. This makes bitcoin an excellent asset to diversify one’s portfolio and mitigate risk.

Bitcoin trading strategies

Now let’s look at some of the most famous bitcoin trading strategies that one can use:

  • Day trading 

Strategy involves buying and selling the crypto on the same day. Traders use technical analysis indicators to book profits using intraday price fluctuations.

  • Scalping

This is also an intraday trading method. This strategy involves buying and selling the asset multiple times in a day to capture the profit.

  • Range trading

Range trading involves buying and selling within a specific price range over a short period. This strategy uses’ resistance level’ and ‘support level’ to take positions.

  • Dollar-cost averaging

DCA involves investing at regular intervals with a fixed amount. It is ideal for investors who cannot get involved with intraday trading.

When it comes to predicting bitcoin prices, it can be pretty tricky. But, with a safe trading platform like the Bitcoin Eraone can trade and analyze bitcoins. Remember to do personal research and analysis before taking any position in the bitcoin market. Do not wholly base the decision on news and other’s opinion.

By admin