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TEMPO.CO, Jakarta - Since its first conception in 2008, Bitcoin has remained a formidable character that shaped the digital currency ecosystem. Currently, cryptocurrency whales like Changpeng Zhao, Brian Armstrong, and Giancarlo Devasini are reportedly long-standing investors of Bitcoin (BTC), with each fortune surpassing ten billion USD.
The prices of Bitcoin, however, are undeniably subjected to substantial risk due to its nature as a virtual currency. Understanding the volatile nature of Bitcoin has become a necessity for traders alike to help grasp and predict the future of this particular market.
So, why is Bitcoin so volatile? Through this article, let’s explore the driving force behind the volatility of Bitcoin as underscored by Investopedia and VanEck.
Why is Bitcoin so volatile?
Currently dominating cryptocurrency’s largest market, Bitcoin (BTC) has experienced many price fluctuations since it was first launched in 2009. While the investment instrument has a fairly stable reputation, its price, on the other hand, is bound to rise or fall by thousands within a day.
But, why does it happen? What makes investing in virtual money a perilous course for investors? To put it simply, much like other commodities, immature markets and developing regulations in many countries lead to Bitcoin’s price fluctuations.
Other primary factors, like the dynamics of supply and demand as well as public sentiment, also drive the volatility of Bitcoin.
Supply and demand of Bitcoin (BTC)
By design, Bitcoin comes with a fixed supply and is limited to 21 million coins in circulation, making it a scarce asset. Following this nature, growing demand will lead to hiking prices, motivating traders to pay more.
With the constraint that comes with this type of dynamics, it has become difficult to project and envision Bitcoin prices. Moreover, the boundless ownership of key players will continue to hinder coin circulation, leading to wavering demand and inevitable price swings.
Trump’s Election and Its Effect on Bitcoin
According to Reuters, Bitcoin tops on $100,000 optimism over Trump’s crypto plans, shifting the attention of investors to gear up for a progressing cryptocurrency ecosystem.
During his campaign, Trump embraced digital assets, promising to transform the United States into the “crypto capital of the planet.” This has sparked anticipation that his administration will foster a friendly cryptocurrency regulation.
This year, Bitcoin’s value has more than doubled, rising roughly 45% in just the four weeks following Trump’s sweeping election victory, which also saw a significant number of pro-crypto lawmakers elected to Congress.
The future of regulations on Bitcoin
While the regulation of Bitcoin in the U.S. constantly evolves, it is considered legal. Cryptocurrency exchanges are classified as a money services business (MSB).
When it comes to tax obligation, the IRS, also known as the Internal Revenue Service, sees cryptocurrency as property, just like stocks, real estate, or bonds. Investors alike owe taxes upon any transactional gains involving the cryptocurrency, including earning, trading, selling, and using it as a payment gateway.
Selling Bitcoin (BTC) for fiat like USD is considered a taxable event as the transactions generate gains and losses. However, several factors are at play to determine the tax liability, like profit, holding period, and tax bracket.
Trading one token for another is also subject to tax obligations. For instance, when you sell Bitcoin to purchase Ethereum, the IRS will view the transaction as a taxable event.
Bitcoin is still in the early stages
In comparison with fiat currencies and gold, which have been around for quite some time, Bitcoin is still in the early stages of becoming a stable market. Their values and prices will continue to fluctuate as investors, governments, and users try to achieve a thorough financial scheme.
While Bitcoin continues to make significant strides as a dominant player in the digital currency space, its volatility remains a key challenge for investors and traders alike.
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