This is a guest post by Mary Ann Callahan, a journalist at UK-based cryptocurrency exchange Cex.io, in which she shares her insight into possible reasons for such a wild Bitcoin price’ fluctuation.
The first half of 2018 has been crazy for the Bitcoin price. Even by Bitcoin’s extremely volatile standards. From the big highs of nearly $20,000 in December 2017, the price of one Bitcoin dropped to $7,000 in February, surged back up to $11,500 in March, dropped even further to $6,600 in April, then recovered to $9,800 in May, and has continued this yo-yoing since. Other cryptocurrencies and altcoins are experiencing similar value fluctuations.
So what are the reasons for these big swings in price? It’s a complex combination of short-term and long-term trends that stack on top of one another to form these wild patterns. Here are some of the main influencing factors and what they might mean for future price fluctuations.
The Fallout from the Bitcoin Bubble
The Bitcoin price experienced a parabolic rise at the end of 2017 fuelled by hype and hysteria. That bubble turned out to be completely unsustainable, and the price tanked well over 50%. It was much bigger than the common dips the Bitcoin price goes through all the time.
The recovery is yet to officially start, and this is still putting a lot of downward pressure on the price. Nobody knows how long this will take, but it could be a while. The last huge Bitcoin crash, in 2013, took years to fully recover. This is no doubt adding to the uncertainty. The recent bubble was inflated in large part by new Bitcoin buyers jumping on the bandwagon. Those new investors got burned, and many are likely still unwilling to get back in the crypto game for a while.
Expectation and Speculation
The flip side is that the experienced crypto traders have been here and done this before. Many are convinced that Bitcoin and crypto recovery and subsequent breakout are inevitable and that the next big price surge could be just around the corner.
This means that there are traders and investors around the world waiting for the bottom of the market to show, so they can get back in to profit from the next jump in price. Every time the Bitcoin price experiences a bump, the expectation grows, which drives the price higher in a self-reinforcing feedback loop.
The Blockchain Industry is Still Evolving Quickly
Aside from market sentiment, it’s also important to remember that cryptocurrency is still a young and evolving technology. New ideas, platforms and technological hurdles are still very much playing a part in setting the price of cryptocurrencies like Bitcoin.
Decentralized app developments like Crypto Kitties spark massive interest and investment in blockchain technology and games. But Crypto Kitties’ wild popularity also ended up shining some light on the current shortcomings of blockchain technology and its ability to scale. Major events like these influence the price of Bitcoin both up and down.
The Bitcoin market is almost completely unregulated. This means that shady practices like market manipulation are much easier than in the markets like the stock market. There are frequently reports, complaints and conspiracies about market manipulation in the cryptocurrency sector, but these claims were legitimized recently when the U.S. launched an official investigation into these kinds of practices.
One of the most common manipulation schemes is called “Pump and Dump”. This is where groups of investors conspire to artificially inflate the price of Bitcoin and profit off of the rise. The group starts to buy Bitcoins rapidly, which increases the price rapidly. When this price jump hits the headlines, other investors get excited and don’t want to miss out.
They start buying, which pushes the price up even more. When the Bitcoin price gets to a certain level, the manipulators start to sell, or “dump” the original Bitcoin they bought at the higher price for a quick profit. This quickly crashes the price back down. Usually to even lower levels than it was before.
If the allegations of Bitcoin market manipulations are true, it could explain a lot of the big price fluctuations we’ve seen recently.
Regulation is still the hottest topic surrounding Bitcoin. The last ten years have basically been a legal free ride for anyone using or trading cryptocurrencies. That’s all going to change in the next year or two. Governments and regulatory bodies are starting to take cryptocurrencies seriously and are actively discussing how to legislate them domestically and internationally.
The exact rules and regulations that end up surrounding Bitcoin in the most important trading countries (US, China, Japan, South Korea, European Union) will have a huge impact on how it can be used. And, therefore, the price.
News of new, potentially damaging regulations can hammer the price of Bitcoin down quickly, while news of loosening regulations also have an impact.
A Lack of Real-world Use Cases
Even with the rise of the Bitcoin price, there is still a complete lack of real-world applications for Bitcoin or any of the cryptocurrencies. This means that there is little underlying value in using Bitcoin (relative to its price anyway) and the price is set almost entirely by speculation and expectation of future adoption.
Until there are some concrete use cases developed for Bitcoin that are used by millions of people around the world, the price will continue to fluctuate in the way we are seeing.
Expect More Volatility to Come
All of these factors interact in ways too complex for anyone to accurately predict in the short-term. Experts have been wrong time and time again. The best strategy is to understand the fundamental factors that drive the Bitcoin price over the medium to long-term and accept that short-term price swings are just a part of Bitcoin’s DNA.
For the foreseeable future, the Bitcoin price will continue to fluctuate. Be smart, and only risk what you can afford to lose!
Where to Buy Bitcoin
If you decide on buying cryptocurrency, the best choice will be to use a reliable exchange or brokerage service. The are many factors that make an exchange reliable: user trust, reputation, security measures, a large variety of trading options, etc.
One such example of a reliable exchange is CEX.IO, a UK cryptocurrency exchange that has been operating since 2013 and offering their services to most countries of the world. CEX.IO’s user base numbers more than 2 million customers, making use of the advanced trading options provided by the platform.
Along with the BTC to USD pair, CEX.IO ensures smooth Bitcoin exchanging to Euro, British Pound and Russian Ruble. Besides, users are allowed to make their fiat deposits and withdrawals through credit cards and bank transfers.
In terms of security and legal compliance, CEX.IO has much to offer. The company is registered in the United Kingdom and has an MSB status within FinCEN (USA). The user financial data is protected by full encryption and processed in accordance with PCI DSS standards.
That said, when it comes to buying Bitcoin, the investors should not only watch out for cryptocurrency trends to time the market but also come up with the right broker to be trusted with their hard-earned money.
Being an expert on Bitcoin-related topics, Mary Ann Callahan has found herself as a Journalist at Cex.io - cryptocurrency exchange. Mary's fields of expertise include, but not limited to, blockchain security, bitcoin purchase guides and bitcoin regulation in different countries.