In 2017 the value of Bitcoin rose from just $ 1,000 to almost $ 20,000, before falling to $ 13,000 at the end of the year. Since then, its value has risen and fallen sporadically from day to day, dragging smaller cryptocurrencies such as Ether and Ripple.
If you are new to the subject of cryptocurrencies this type of volatility can be very confusing (and painful, if you invest at the wrong time), but if you look more closely you will notice that everything starts to make sense. This is why the price of Bitcoin changes so drastically, and why it could become more stable in the future.
Bitcoin is still very new
Bitcoin was launched in 2009 but only achieved global popularity in 2017. Technology continues to be too new and misunderstood, and that is partly to blame for its value being so difficult to pin down.
Added to this is the fact that most Bitcoin in the world belong to a small group of people. At the end of 2017, 95% of the cryptocurrency was owned by just 4% of people who have Bitcoin, according to research. That means that a single person could decide to release large quantities of Bitcoin in the market at any time, which would completely destabilize their value.
The price of Bitcoin can also change drastically as countries and financial institutions adapt to the idea of cryptocurrencies. For example, when the largest banks in South Korea tested the technology, its value increased. On the other hand, when China announced its plans to take measures against the ICOs (a crowdfunding or collective financing based on cryptocurrencies) without complete information, its value decreased. The same happened when a South Korean government official said the country could ban cryptocurrencies altogether.
Bitcoin is different from everything that came before
Bitcoin is different from anything else thanks to the blockchain technology that powers it. It is also treated differently from other types of currencies and products because, in reality, we are still not sure what it is. That leads to great instability.
The original idea during the launch of Bitcoin was a version of the money you could send to anyone around the world: cash on the internet. However, because the value of Bitcoin increased so drastically and because each transaction requires a computer with enough power (and a lot of power) to process it, it does not work very well as a way to spend money. That created an uncertainty around the cryptocurrency, which leads to rapid changes in its value.
Unlike other types of investments, such as stocks or gold, the Bitcoin trade never stops. There are no market hours. Instead, you have 24/7 open transactions, which means there can be more fluctuations in the value of Bitcoin and, in general, less stability on a day-to-day basis.
How Bitcoin could be more stable
The best thing for the Bitcoin is that as it becomes more and more popular and more people buy it, this type of changes in value will diminish for two reasons. First, individual owners will have less power over the Bitcoin price, and secondly, this creates stability because more people are using cryptocurrency.
The other possibility is that government regulation could help stabilize Bitcoin. In the short term this would cause its value to fall drastically (as it happened in China and South Korea), but in the future it could help to calm the speculation and prevent those suspicious Bitcoin-related businesses from being carried out that threaten to destroy the concept of cryptocurrencies.