Cryptocurrency Check: Why Are Bitcoin Prices So Volatile? MintGenie explains

Now, as of September 2022, it has now fallen to $20,210, reporting a significant drop of 46 percent in just over a year.

Investors often wonder why the price of bitcoin fluctuates so wildly. The unpredictability of the price makes it seem “unreliable” as an investment among some investors. But to understand why the price changes so quickly, we need to know the reasons that drive this cryptocurrency and most importantly – the demand.

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Reasons for the spike

An important reason for a massive jump in the price is that the established institutions such as pension funds, investment funds have now started investing in it. Until 2017, bitcoins were invested in by individual investors. But with greater acceptance, many billionaire investors and financial institutions have now come out openly in favor of bitcoin and its future. For example, JP Morgan started offering bitcoin funds to its wealthy clients and also created a digital coin JPM Coin to make payments using blockchain technology.

Musk effect

When the electric car manufacturer Tesla led by Elon Musk bought bitcoins worth $1.5 billion in February 2021, the price of one bitcoin reached a record high of $44,000 (approx. ₹33 lakh). Later, Musk dragged his feet on allowing Tesla to accept payments in bitcoins by expressing environmental concerns that bitcoin mining uses large amounts of electricity. However, he again announced in July 2021 that Tesla would likely accept payments for Tesla in bitcoins, pushing bitcoin prices again.

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Greater acceptance

Vendors and merchants have also started accepting bitcoins. Paypal, Starbucks, BMW, Expedia and Zinga, among others, now facilitate transactions in bitcoins. Any positive statement by central banks in favor of blockchain technology is likely to tip the scale in favor of bitcoins.

El Salvador became the first country in June to accept bitcoin as legal tender starting in September 2021. In fact, hardly any institution or country is averse to the blockchain – the technology behind the creation of bitcoin.

So bitcoin prices have jumped to new all-time highs recently. Some have invested in it for fear of missing out, while some others are still uncertain about the future. Whichever side one is on, it is advisable to exercise due caution before committing large sums to it.

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