Bitcoin’s Volatility Issue

By: Ada Muqqadus — Correspondent

Bitcoin is designed as a person-to-person cash system and as a volatile cryptocurrency, it must be stable, and recently Bitcoin has been growing in value which becomes a problem for many. 

Scalex, a global software company says if a company’s stock is overpriced, they may short the stock and make a profit. “Bitcoin’s price is so volatile because of speculation, while it’s possible to buy physical goods with Bitcoin in some places, the large majority of Bitcoin transactions are still investment-based, as such, people buy and sell Bitcoins like they would any other investment. This buy-sell cycle is what makes Bitcoin’s price so volatile,” said Scalex.

The company says there is no absolute way of measuring the volatility of digital currencies, but that it is possible to help this situation. 

The price of Bitcoin is determined by supply and demand. “There is only a limited number of Bitcoins in circulation and new Bitcoins are created at a predictable and decreasing rate, which means that demand must follow this level of inflation to keep the price stable.” Bitcoin is a small market, it does not take a great amount of money to move the market price up or down.

Certified Financial Planner Danny Bradbury says that Bitcoin has also been attacked several times in the past. “Bitcoin’s decentralized financial network is not immune to attack. It has already been subject to attacks on numerous occasions, and is in danger of experiencing more,” added Bradbury.

Bitcoin can also be a potential for theft. Certified Financial Planner Matthew Frankel says bitcoins can be stolen and people should take caution. “Security measures exist that make Bitcoin virtually impossible to steal, but taking advantage of them involves a somewhat complex knowledge of how Bitcoin works and can often require significantly more effort on the part of the user, while true Bitcoin enthusiasts don’t mind taking extra security measures, and with online bitcoin wallets, there’s always some chance that the currency could be stolen,” said Frankel.

Bitcoin has also had a long reputation for criminal activity which is one of the biggest issues in the world of Bitcoin. 

“Bitcoin, especially in its early days was well known for its use on the Dark Web, in money-laundering activities, or to purchase illegal items, as the only true anonymous source of payment, Bitcoin became the natural choice for people who wanted to buy drugs, illegal weapons, you name it,” said Frankel.

Frankel says people have had many tax issues with Bitcoin as well. “If you buy Bitcoin and then sell it for more than you paid, you’ll need to report the difference on your taxes, even worse from a currency perspective, every time you use a bitcoin to buy something, it is a potentially taxable event,” added Frankel. It is a terribly exhausting amount of record-keeping for many. 

Bitcoin users have also experienced a serious scalability problem in the past. Frankel says that the more Bitcoin trades and purchase transactions are executed, the network will have a more difficult time keeping up. “The blockchain limits the amount of information that can be contained in each block to 1 megabyte of data and this limitation allows for a maximum network capacity of about three transactions per second,” Frankel said.

Bitcoinist Anatol Antonovici says that there is a way Bitcoin can become less volatile. “Bitcoin’s dominance level is currently at 70%, the highest since March 2017, and it is natural that the largest cryptocurrency will lead the whole market in one or another direction,” but this could change.

Antonovici says Bitcoin has become less volatile for a small period of time. “However the digital currency has become less volatile in the last few years indeed when we check the volatility index, we can see that the oldest coin out there used much more volatile in percentage terms until 2014, but it’s still hard to believe Bitcoin will maintain a low volatility level in the long run,” added Antonovici. 

Anatol says we never really know whether Bitcoin will become less volatile. “We have stablecoins that address the volatility issue, however, no-one denies the fact that Bitcoin is doing great as an investment instrument,” he said.

So how can one keep their Bitcoins safe? Well, you could start off with not using custodial wallets, says Bitcoin representatives. “Instead of leaving your precious assets in the custody of a third party, we highly recommend that you store your cryptocurrency in a non-custodial wallet- a wallet that you and only you can access,” added Bitcoin representatives.  

Using non-custodial wallets, hardware wallets, or paper wallets is highly recommended to keep Bitcoins safe and less likely to be in danger of getting hacked or stolen.

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