Why is the bitcoin price fluctuating unusually?

It has been 11 years since the advent of Bitcoin in 2009, and its price has risen from the original 5 cents to about 9,000 US dollars at present, and it even approached 20,000 US dollars at the highest. Thousands of rises over ten years have been discussed.

The believers believe that the market value of hundreds of billions of Bitcoin as the “currency of the people” confirms its value. Unbelievers insist that Bitcoin is just a scam , and the huge increase is just a blinding bubble that will soon be burst. . The former statement is somewhat idealistic, while the latter is somewhat emotional.

But whether believers or detractors, there is one thing in common, that is, in the process of continuous rise of Bitcoin, its price has shown extraordinary volatility, which is also the most criticized place of Bitcoin. Price fluctuations have kept Bitcoin from becoming a safe-haven asset in the true sense, let alone currency. 


(Figure: Price movements and return on returns of Bitcoin and A shares since August 2010)

Hegel said that existence is reasonable. Since the development of Bitcoin, it naturally has its inherent rationality, but what causes its price instability? The following editor makes a simple combing of this.

1. The value structure of Bitcoin determines that it has no traditional fundamentals in the market

Bitcoin was born after the financial crisis in 2008. From the perspective of Satoshi Nakamoto’s design concept, it is an ideal payment currency for super-sovereignty. Swell.

At the same time, it is also a tentacle for emerging technologies such as IT and the Internet to reach the traditional financial field. In fashionable expression, it is “very trendy” and “postmodern”. The accusers said that Bitcoin is “just a bunch of codes, and there is no value support behind it.” But some people may ask, how is its price formed? Will prices without value support continue to rise for ten years?

As we all know, we are now in the era of credit currency. Behind all fiat currencies, national credit is blessing. Unlike bitcoin, its heritage comes from the accumulation of personal credit. Whether believers or investors or speculators, countless bitcoin holders Its personal credit is invested in the market, thus forming its value.

This is completely different from traditional financial assets. Unlike traditional financial targets, it has a clear profit growth vein, but it only expands its own value with the accumulation of personal credit. The market performance is the continuous increase in market value, which drives the price to rise. .

But the problem is coming. In theory, it is easy to say that in the investment market, without a clear source of profit and profit growth, it means that there is no fundamentals, and investors have lost the basis for judgment and investment, and can only look at Bitcoin. The increasing market value in the ups and downs of prices guides investment behavior.

Taking the traditional capital market as an example, stocks falling below profits are oversold, and stock prices that have risen well above normal profit values ​​have oversold, where investors can guide investment behavior accordingly.

However, Bitcoin has no profit benchmark and can only analyze fluctuations in price fluctuations. In this case, it can be said that almost all K-line analysis is passive water and no wood, and it can only analyze historical prices. fluctuation. Losing the benchmark for profit growth also loses the fundamentals of good or bad economics, so it is not surprising that Bitcoin price fluctuations fluctuate by several tens of percent.

2. Small market value fluctuations naturally increase

It is true that the market value of bitcoin continues to grow, but bitcoin, which has only been born for more than ten years, is still only a small point in the capital market of tens of trillions. At present, the market value of the entire cryptocurrency market is about 264.4 billion US dollars, of which the market value of Bitcoin in circulation is 165.38 billion US dollars (that is, 1.17 trillion RMB). The entire cryptocurrency cannot be compared with the total market value of A shares of 34.46 trillion RMB, and the market value of bitcoin is also inferior to Maotai’s individual stocks (1.72 trillion RMB), not to mention Ali, Apple, and Amazon.

The small market value means that prices are easily manipulated by the dealer and fluctuate. In addition, among the holders of Bitcoin, the top 100 so-called “big whales” hold 12.87%, and their large purchases and sales will have an impact on the market price of Bitcoin . Manipulation, bitcoin prices will naturally behave up and down. 

3. The large proportion of speculative funds is also one of the reasons for the rise and fall of Bitcoin prices

It is necessary to state that speculative capital is not a derogatory term here.

Profit-seeking is a characteristic of capital. In the entire capital market, speculative funds account for a large proportion. Those who only stare at stock price fluctuations and throw highs and lows are difficult to say that they are full value investors, or more or less. There are some speculative ingredients.

Have n’t you seen? The Jianglong in the stock market has not stirred up the stock market, so in all capital markets, speculative funds are an objective existence, but the ratio of speculative funds to the overall market value of the market is different. Different fluctuations have different effects.

In terms of encryption currency markets, its relatively small market cap, speculative fund accounting is too large, the proportion of value investors and institutional investors is relatively small, and the characteristics of speculative funds is to buy low sell high, fast-forward Fast out, take advantage of price fluctuations and arbitrage, which is also one of the important factors for the price of Bitcoin to skyrocket. 

4. The impact of regulation on currency prices

The birth of Bitcoin and the existing legal currency financial system formed an alternative confrontation relationship. Satoshi Nakamoto’s early vision was to design a “national currency” to replace the existing legal currency system affected by the monetary policy of sovereign countries. This kind of confrontation has caused bitcoin to be resisted by governments.

Judging from the current situation, the starting point of the sovereign state’s supervision of crypto token offerings is mostly limited rather than regulated and perfected. From the introduction of Libra and the unanimous resistance of governments in various countries, you can glimpse one or two.

Libra is an electronic payment system that is closely linked to the existing fiat currency, and has yet been boycotted by the fiat currency system, not to mention the bitcoin opposite to the fiat currency system. The subsequent Crypto tokens (DCEP) that various sovereign countries intend to launch are the digitization of existing fiat currencies, which are Crypto representations of fiat currencies. Their role is currently limited to the field of payment, which is essentially different from Bitcoin.

It is precisely because the regulation is mostly from the perspective of restriction and prohibition, so Bitcoin will plummet as soon as it encounters regulatory trends. Cryptocurrencies have been postponed several times in the US ETF application, and the ban on IC0 issued by nine ministries and commissions in our country has caused bitcoin to suffer a serious setback.

But occasionally, there are positive signals, such as the introduction of sandbox regulation, but the road is long and difficult, and everything still needs market inspection and time proof, wait. Just responded to that sentence: “See you for a long time.” 

5. Influence of economic situation and geopolitical factors

Inflation and deflation caused by the instability of fiat currencies, and the tense geopolitical situation will also make cryptocurrencies a safe haven for assets. In 2017, the national inflation rate in Venezuela was as high as 2616%. The abnormally high inflation rate made Bitcoin a hard currency in Venezuela and promoted the prosperity of Bitcoin transactions.

When the global economy is not good, safe-haven funds will flow to alternative assets such as Bitcoin to hedge the instability of traditional financial assets. When the global economic situation improves, speculative funds in the market will increase, and more money will be invested in Bitcoin to make money.

Finally, to add one more point, Bitcoin’s own development and improvement will also have a large impact on its price fluctuations, such as the halving of Bitcoin’s output rewards . In addition, other cryptocurrencies, especially the altcoin hype, such as IC0, IE0, etc., will cause a certain degree of fluctuations in the price of Bitcoin. 

Why does the price of Bitcoin fluctuate greatly? We are here to simply summarize and sort out some obvious factors, these are a collection of appearances, but in any case, bitcoin has been rising in volatility for more than ten years, and its rate of return is much higher than traditional capital market.

Bitcoin has been anonymous, a liar, and can buy two pizzas. Until now, it has been an alternative risk asset that many famous investment banks and big funds cannot ignore. That’s right, it is volatile and high-risk, but the benefits are also considerable. The current situation is that with the increasing acceptance of the public, many countries have also begun to consider entering the Crypto currency field, and a number of regulatory authorities are also thinking about how to include this alternative asset in regulation. 

Here we do not make value judgments, and make good or bad conclusions, but only use empirical methods to discuss a reality. In fact, Bitcoin is not just an existence, it has spawned blockchain technology and also promoted the traditional financial system to move towards Cryptoization. Of course, Bitcoin also gathers a lot of speculators, including fraudsters. 

What is right and what is different we are facing a world of great uncertainty today. Bitcoin’s uncertainty may be another footnote in today’s world.

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