Why is the price of Bitcoin subject to such drastic changes?

2017-03-15 00:00:00:

Economic and financial publications and the online press are full of discussions about the Bitcoin phenomenon. Particularly heated debate is over frequent changes in the exchange rate of the first cryptocurrency, the scale of which is sometimes simply impressive. Let"s try to understand the reasons for the sharp change in the price of Bitcoin.

Experts identify several factors that affect the value of cryptocurrency. To make a Bitcoin price forecast, the following criteria should be considered:

• The number of users willing to use virtual coins to pay for goods and services. The value of this parameter directly depends on the nature of the news about cryptocurrency - the bad ones provoke a fall in prices, while positive information helps to increase the value of cryptocurrencies.
• The value of Bitcoin in the eyes of an ordinary layman. It should be noted that digital money compares favorably with traditional means of payment with a limited level of emission. After all, the smaller the coins, the more expensive they cost. Whereas the unlimited issue of the national currency leads to hyperinflation and the depreciation of monetary units. The factor of constant complication of the process of generating the latter plays into the hands of the owners of crypto savings.
• Profitability of cryptocurrency investments. It is almost impossible to predict its level in advance. The cost of digital money is changing so rapidly that users who want to buy Bitcoins are simply not able to calculate the benefits of the purchase. Thus, they have no confidence that in the future they will be able to use coins to pay for the necessary services and goods.
• Passive position of major market players. And this behavior can be fully understood, because cryptocurrency is a relatively new technology and it is not completely known what exactly awaits it in the future. If a company buys Bitcoins for a large amount, then it has no guarantees that it will be able to quickly sell them in the face of panic in the market. However, it was noted that sooner or later, each collapse of the course is replaced by another, more impressive and grandiose rise in the value of virtual coins.
• The unwillingness of Bitcoin developers to make changes to the security system. They explain their position with numerous risks that can adversely affect the operation of the network. One cannot but admit the validity of such arguments. But on the other hand, the stubborn unwillingness to eliminate the identified shortcomings plays in this case against cryptocurrency. It is necessary in the near future to solve this problem by adopting a new protocol or increasing the standard block size.
• Using Bitcoin as a convenient tool for investing in emerging markets. A similar opportunity has appeared relatively recently and is explained by the fact that the level of Bitcoin volatility to the US currency is much higher than to the monetary units of third world countries in which hyperinflation is observed. Bitcoin allows not only to protect savings, but also to increase them during a period of economic turmoil, both global and local.
• Legal restrictions in the form of a ban on the use of virtual coins under the threat of criminal or administrative liability. It should be noted that at present this risk is minimized, since most states, including Russia, demonstrate a loyal attitude to cryptocurrency.

Thus, the indicators of the Bitcoin volatility index depend on a significant number of factors having a political, economic and social character.