Various factors contribute to Bitcoin’s price volatility, and unfortunately, this uncertainty and variation in price will exist as long as these factors are still in place.
One of the primary reasons that Bitcoin’s price is consistently inconsistent is limited availability. Simply put: we don’t have enough coins in circulation, making Bitcoin vulnerable to liquidity problems.
The total value of Bitcoin currently in use today is approximately US$60 billion. While that might seem like a lot at first glance, to give you a comparison, the amount of conventional currencies (i.e. non-cryptocurrencies) currently in circulation is several trillion dollars. The lack of liquidity means that if one investor purchases or sells many Bitcoins at once, that one person has the power to destabilize the entire market, making the overall price drop or increase accordingly.
How do we fix all of these problems? Basically, there’s no one thing that can be done that will magically address all of these issues overnight. There must be enough coins in use to ensure liquidity. Additionally, the cryptocurrency needs to earn near-global recognition and adoption. And because (unfortunately) none of us have a functioning crystal ball, no one can say whether all of these changes will happen in the near or distant future.
But things don’t look super bleak! Here are some conditions that would help stabilize the price of Bitcoin.
If mining ends
Cryptocurrency networks such as Bitcoin and Ethereum rely on a complex process called mining to tap more coins into circulation. The additional Bitcoins usually come as rewards to the miners for managing transactions. Therefore, the number of coins in circulation will decrease if the mining process slows down.
That being said, more mining also means that we’ll have more Bitcoins in the network, and since virtual currencies obey the good ol’ law of supply and demand, prices will vary depending on mining progress. But it’s also not quite as simple as that. A phenomenon called Bitcoin-halving usually depreciates the value of each coin by a half, and whenever this happens, surprise: Bitcoin’s price falls drastically!
But wait, there’s yet another plot twist! Bitcoin-halving also eventually forces the price to increase. It occurs every four years, and the price always skyrockets after the phenomenon. In addition, Bitcoin’s value has been fluctuating because more coins are constantly being mined and added to the system. At this rate, it looks like the price will only become fairly constant once all the 21 million Bitcoins the founder created have been mined.
If Bitcoin cryptocurrency attains near-universal use and approval
While we can’t dispute Bitcoin’s ever-growing significance in the world’s economy, it’s essential to note that only a few countries have legally endorsed the technology. In most parts of the world, various governments are still weighing options on whether or not to adopt Bitcoin technology.
Some governments are cautious of cryptocurrency due to its decentralized nature and the inability to regulate it. In addition, not all companies have implemented cryptocurrency payments. Even though Bitcoin exchanges like Bitcoin Prime have spread globally, it’s no secret that on the whole, the technology still has a long ways to go.
Think of it as a domino effect: a worldwide Bitcoin acceptance will ensure there are enough coins in circulation, which will lead to the liquidity that we mentioned above, which will then lead to overall Bitcoin stability.
If scams decrease
You know that old saying that people are quick to forget your good deeds but will always remember your mistakes? Unfortunately, that applies to Bitcoin. Like any form of technology, Bitcoin isn’t completely immune to scams and other fraudulent activities. When news of such scams first surfaced following Bitcoin’s larger introduction to the world, a lot of people worried that they’d lose all of their money as a result of one of these schemes. It’s years later, and while more people are realizing that cryptocurrencies aren’t any less safer than literally any other online technology, some less tech-savvy are still hesitant.
Any cryptocurrency-related news usually spreads quickly – crypto’s a hot topic! So, let’s face it: if the information is positive, Bitcoin’s value appreciates. And not to state the obvious, but on the other hand, prices go down if the information is negative. That being said, if crypto-related scams were more quickly mitigated and resolved, then we’d see users’ trust in Bitcoin increase. From there, overall investment would rise, helping stabilize the currency.
Note: Coconuts Media is not a financial services company, does not provide financial advice, and is not a qualified expert in the storage of digital assets—financial or otherwise. This article is part of a paid partnership with Bitcoin Prime and is for educational purposes only.
