Bitcoin’s Volatility

Written by Edward Gonzales

February 26, 2021

The largest transition of wealth in history is occurring right before us. Fiat as we know it could very well cease to exist within the next few decades. “Wealth” has been limited to a select few since its inception. Bitcoin was created as an alternative method of storing and transferring value. It has also opened up new monetary opportunities to people who’ve never had an option to grow their wealth. Early investors of Bitcoin have seen amazing returns on their positions if they managed to hold them this long. Don’t worry, it’s not too late for new investors to get involved. The market volume, in fact, is seeing record highs since the bull run of late 2017.

Some people were fortunate enough to take their positions early in Bitcoin’s history. Many investors that have not gotten involved with Bitcoin yet often raise the question: “Why is Bitcoin so volatile?” That’s a great question. While it can’t be answered directly, it can be summarized in a few ways.

Price action is the ultimate source of information. There is a lot of technical information within Bitcoins price action. If you take a look at its chart from afar, you will see it only has upward movement. There have been many major pullbacks since Bitcoins inception, but historically, Bitcoin has only increased in value exponentially. Any chart on any exchange will tell you the same thing. There are other ways to analyze data such as psychological and on-chain analysis, but ultimately speculators base their predictions off of Bitcoin’s constant upward price action. 

That’s the reason the Bitcoin market is so volatile – it is a speculators market. The believers of Bitcoin and its project are in for the long run. Some public figures like Anthony Pompliano have predicted Bitcoin to exceed 100,000 USD in the current bull run. Others have speculated Bitcoin’s price to exceed 300,000 USD by December, 2021. There are definitely a lot of technical reasons behind Bitcoin’s upward price action, but the main reason is due to high speculation. 

Many investors are seeking to store their value over space and time without worrying about losing their net worth. Bitcoin has historically shown that it is one of the best vehicles to do just that. Investors want to protect the capital they have worked so hard to obtain. As the world experiences a pandemic and monetary assets are losing value globally, people are naturally looking for a safe place to store their value. Bitcoin offers better long term security over most traditional assets. Many people find Bitcoin in their search for security. 

Every trade affects the market price of Bitcoin. Day traders are among the smallest branches of the Bitcoin industry. Traders get in and out of their positions daily by taking advantage of the market swings. Some traders take all their profits each day while some keep them in the market over longer periods of time. Some traders make money by taking a “long” position; wagering the price will rise higher so that they can sell their position for a profit. Other traders make money by taking a “short” position; wagering that the price will fall lower so that they can rebuy their position for a cheaper price.

The Bitcoin “whales” are those that have acquired a substantial amount of Bitcoin in their wallet address. Most of the known whale addresses have been inactive for years, indicating they acquired their coins early on and have not done anything with them since then. This public information keeps many investors from entering the Bitcoin market in fear that the whales will “dump” on them by selling off a large portion of their coins at once. 

According to basic supply and demand, as more Bitcoins are then added to the open market, this drives the price of Bitcoin down. Every time a whale sells off a chunk of their coins, they are gobbled up by exchanges or exchange users. The supply of Bitcoin is limited and for this reason most believers of the project buy satoshi every chance they get and do not let go of them. This accumulation of holders is what gives Bitcoin its high value. 

It’s not farfetched to say that whales manipulate the market. Bitcoin is definitely one of the most manipulated cryptocurrencies to exist. Do not let anyone tell you otherwise. If a whale wants to take profits on their position, they will do so without telling you or anyone else. This is how market slams occur. Whales suddenly selling major positions is the leading cause of market pullbacks. There is always someone ready to buy Bitcoin; however, so the pullback can be small depending on the market conditions. 

When major sell-offs occur, futures positions can see liquidation. Many traders also close their leveraged positions early when it is not profitable to avoid liquidation. As markets experience major sell-off, millions and sometimes billions of dollars in futures contracts are liquidated. This is the next leading reason for major market retraces. 

After whales sell a chunk and futures traders get liquidated, spot traders start looking for “short” opportunities mentioned earlier. Many spot traders shift their value into stable coins to preserve their net worth and then later attempt to rebuy their assets after a correction. Short traders can increase their coin holdings this way. The only problem when shorting is that the bottom can’t be predicted. The top, of course, can’t be predicted either and this is true for any asset. The difference in taking a long position is that if your timing is off, your position will be forgiven at some later point in time. This is not true for short traders. When short traders sell their position, they hope to buy it back later for a cheaper price. 

Bitcoin may never return to a price it was yesterday. That statement is true each and everyday you say it. Bitcoin does not promise lower prices as per its price action analysis. Bitcoin does not show constant opportunities to buy cheaply. It does, however, show upward price movements and massive growth since its creation. This is the number one reason investors are buying Bitcoin at every opportunity. 

If you own some Bitcoin, congratulations to you. If you do not own any Bitcoin, that’s okay, there is still time to get in. Check out some of our free resources or purchase one of our affordable courses at our homepage

The first chapter of Bitcoin is written. We are witnessing the next chapter. Do not just witness. Take part.

Any advice or information in this publication is general advice only – it does not take into account your personal circumstances. Please do not trade or invest based solely on this information. By viewing any material or using the information within this publication you understand that this is general education material and you can not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here. Trading cryptocurrency has potential rewards, but also potential risks. You must be aware of the risks and be willing to accept them in order to invest in the markets. Only trade with funds you can afford to lose. This publication is neither a solicitation nor an offer to buy/sell cryptocurrency or other financial assets. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

Written by Edward Gonzales © Crypto University 2021

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