Five Essential Things You Should Know About the Bitcoin Price Fluctuation

Introduced in 2009, Bitcoin has reached unprecedented popularity, with an ever-fluctuating BTC in the crypto market. When Bitcon began to rise in popularity in 2010, the “price for one token rose from fractions of a dollar to $0.09,” whereas today it costs around $19,400 USD for one BTC on the market.

5 essential points when it comes to understanding why and how Bitcoin fluctuates.

#1 Why is Bitcoin volatile?

Three basic points by Investopedia brings light to why Bitcoin is volatile. The first is the supply and demand of Bitcoin. Economically, the smaller the supply, the higher the price when there is high demand, because people or investors will be willing to pay a premium price on remaining BTC in the market. For example, “the cryptocurrency is limited to 21 million coins” and when the supply reaches or is close to the limit, prices will start to hike. The second reason for Bitcoin volatility are the investors of bitcoin. If the “Bitcoin whales” (investors with tens of millions of BTC holdings or more) decide to liquidate their digital assets to fiat currency, this may affect the market price. For example, some addresses own much more bitcoin than others, and they may represent the heaviest influencers on the market. Addresses with the most Bitcoin belong to Binance, Bitfinex, MicroStrategy, and more. Top Bitcoin investors include Barry Silbert (Digital Currency Group), Micheal Saylor (MicroStrategy), Cameron and Tyler Winklevoss (Bitcoin billionaires), Elon Musk (Tesla), and Michael Novogratz (Galaxy Digital Holdings). Although some restrictions to liquidating assets may apply depending on the exchange, many investors trying to liquidate their assets at once would also cause the price of BTC to fluctuate. The third point for Bitcoin volatility is sentiment. Oftentimes, investors will see Bitcoin news, media, and more. One example of investor sentiment influenced by media outlets was “Proshare’s introduction of its Bitcoin Strategy ETF (exchange-traded fund) in late October 2021” where once announced, Bitcoin’s price skyrocketed for a time. 

#2 Are all cryptocurrencies volatile?

Some cryptocurrencies, such as Ethereum (ETH), Stellar (XLM), Bitcoin (BTC), Litecoin (LTC), Ripple (XRP), Dash (DASH), Shiba Inu (SHIB), Dogecoin (DOGE) and more, are considered to be some of the most volatile cryptocurrencies. Some of the least volatile cryptocurrencies also exist, being the Basic Attention Token USD (BAT-USD), Curve DAO Token USD (CRV-USD), NEM USD (XEM-USD), and many more. While all cryptocurrencies are volatile to an extent, some digital currencies do not fluctuate as much as the other popular currencies such as Bitcoin or Ethereum.

#3 Is Bitcoin regulated?

Short answer is yes, Bitcoin and cryptocurrencies are mostly regulated across the world. For example, in the United States, cryptocurrencies including Bitcoin, are not considered legal tender, while it is legal to trade and exchange cryptocurrencies. The United States Financial Crimes Enforcement Network (FinCEN) considers cryptocurrency exchanges to be money transmitters. The Internal Revenue Service (IRS) defines cryptocurrency as “a digital representation of value that functions as a medium of exchange” where it may be taxed. Other regulations of cryptocurrency in the United States indicate that cryptocurrency exchanges fall under the Bank Secrecy Act (BSA), where it is regulated, while the US Securities and Exchange Commission (SEC) considers cryptocurrencies to be securities.

In Canada, cryptocurrency is not a legal tender. However, many merchants that accept crypto payments or donations may accept popular cryptocurrencies, such as Bitcoin, as a form of payment for goods or services. In addition, the Canada Revenue Agency (CRA) taxes cryptocurrencies. To find out more about Canadian tax laws on cryptocurrencies, you can read the five essentials of filing crypto taxes here.

#4 What factors fluctuate the price of Bitcoin? 

Similar to point one above, Bitcoin prices are heavily influenced by the market of demand and supply. Bitcoin, unlike fiat currency, stocks or bonds, are decentralized. The decentralized nature of Bitcoin allows it to be distributed across different systems all around the world, which make it difficult for governments to regulate. When governments impose laws on Bitcoin and cryptocurrencies, this may impact the price of Bitcoin. Another factor of Bitcoin fluctuations is investor or public speculation of the cryptocurrency. When investor speculation is positive, Bitcoin may rise, but when investor speculation is low, Bitcoin may fall. 

#5 What is the future for Bitcoin investors?

The cryptocrash of 2022 may be identified as the tumble to Bitcoin (BTC) and other cryptocurrency prices. BTC fell below $30,000 for the “first time since July 2021,” after a peak close to $70,000 in the same year. In addition, the fall of the Terra stablecoin “[wiped] out more than $200 billion in the cryptoverse,” plunging about 80% of its value.

The future for Bitcoin investors is to continue to expect volatility in the market. Demand and supply will continue to cause the price to fluctuate. According to Time.com, many experts say that Bitcoin may surpass the $100,000 mark in the future. Another study conducted by the Deutsche Bank found that a quarter of Bitcoin investors believe that Bitcoin prices will be over $110,000 in another half decade. Sentiments remain divided and speculative, as Bitcoin prices are exceedingly difficult to predict.

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***This article is not meant to offer any tax, investment or trading advice. The author of this article is not a licensed tax, investment or financial advisor***

Sources

Nathan, R. (2022, August 2). Why Is Bitcoin Volatile? Investopedia. Retrieved August 2, 2022, from https://www.investopedia.com/articles/investing/052014/why-bitcoins-value-so-volatile.asp

River Financial (2022, August 2). Who owns Bitcoin? River Financial. Retrieved August 2, 2022, from https://river.com/learn/who-owns-the-most-bitcoin/#:~:text=The%20five%20addresses%20with%20the,holds%20%E2%80%8B%E2%80%8B252%2C597%20BTC.

Rakesh, S. (2022, August 2). Top 5 Bitcoin Investors. Investopedia. Retrieved August 2, 2022, from https://www.investopedia.com/articles/people/091516/top-5-investors-investing-bitcoin.asp

Amon Tech (2022, August 2). The Top 10 most volatile cryptocurrencies. Amon Tech. Retrieved August 2, 2022, from https://amon.tech/blog/hot-takes/the-top-10-most-volatile-cryptocurrencies

Yahoo Finance (2022, August 2). Least Volatile Cryptos. Yahoo Finance. Retrieved August 2, 2022, from https://finance.yahoo.com/u/yahoo-finance/watchlists/crypto-volatility-low/?guccounter=1

ComplyAdvantage (2022, August 2). Cryptocurrency regulations around the world. ComplyAdvantage. Retrieved August 2, 2022, from https://complyadvantage.com/insights/cryptocurrency-regulations-around-world/#:~:text=Cryptocurrency%20exchanges%20are%20legal%20in,submit%20reports%2-0to%20the%20authorities.

InnovFin (2022, August 2). Five Essential Things You Should Know About Filing Crypto Taxes. InnovFin. Retrieved August 2, 2022, from https://www.innovfin.ca/en/Blog/f/five-essential-things-you-should-know-about-filing-crypto-taxes

Blockchain (2022, August 2). Why Is Bitcoin So Volatile? Storm2. Retrieved August 2, 2022, from https://storm2.com/storm2-voice/blockchain/bitcoin-volatility/

Dhanusha, G. (2022, August 2). Why are Bitcoin, other cryptos so volatile? Retrieved August 2, 2022, from https://www.zawya.com/en/special-coverage/the-future-of-cryptos/why-are-bitcoin-other-cryptos-so-volatile-mv36s9zk

Megan D. (2022, August 2). Experts Say Bitcoin Could Hit $100,000 In 2022. Here’s What Investors Should Know. Time. Retrieved August 2, 2022, from https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-price-predictions/#:~:text=Experts%20Say%20Bitcoin%20Could%20Hit,Should%20Know%20%7C-%20NextAdvisor%20with%20TIME&text=Now%20is%20a%20great%20time,means%20higher%20APYs%20on%20NextAdvisor.


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