A year with Bitcoin on a roller coaster ride

Cryptocurrency trader Stephane Ouellet always installs a special mode on his phone to warn him when the cryptocurrency market collapses.

At 2:30 am on December 4th, his phone rang again while he slept. This is because BTC collapsed by 20% within a few minutes and could no longer sleep afterwards.

Ouellette spent the next afternoon calling her teammates and constantly monitoring the price of cryptocurrencies, even as the market stabilized. This is not the first time he has endured such long weekends because of Bitcoin’s sudden decline. And sooner or later that dreaded warning will sound again.

“The market is still wondering if this is an alternative financial system or just a scam,” said Ouellette, CEO and co-founder of the digital currency platform FRNT Financial in Toronto. What makes BTC so volatile.

Looking back through the rearview mirror, 2021 is a year full of memorable milestones for Bitcoin, the first being the 13 year milestone for this digital currency. Like young people, it is also the growth driver of BTC : it has gained new supporters and in some places Bitcoin has been recognized as an official means of payment.

For most of the past year, BTC has climbed to new records as a flurry of new stuck home traders poured in, hedge fund managers and Wall Street experts. Most notably, El Salvador was the first country to recognize Bitcoin as its official currency. An ETF based on Bitcoin futures is officially born after a long wait and has also caught the attention of investors. All in all, a number of new things were born based on blockchain technology, which at the same time helped reshape the world of art, sports and gaming.

However, by some methods, the world’s largest digital currency, even at $ 50,000, is still as volatile as it was back then at $ 5,000. U.S. dollar So. In 2021, Bitcoin saw 19 sudden fluctuations. In other words, Bitcoin still retains its unpredictable nature.

Why are these frenzied volatility waves continuing? Firstly, is it hard to know what BTC is used for in the financial world and where the digital currency is going to fall?

“There is still too much uncertainty about the future. Bitcoin is gradually becoming a mainstream asset. We know that Bitcoin has value, but what that value is is very controversial, ”said Jim Greco, General Manager at Radkl.

Another factor that leads to high volatility is the confusing structure of the digital currency market. These coins are traded around the world and on various exchanges around the clock. At the end of the week, when volume is low, prices can be more volatile. Nor is there a breaker or mechanism to smooth out volatility – like stocks do – to prevent sudden spikes in volatility, said Noelle Acheson, director of market research at Genesis.

Acheson’s analysis shows that Bitcoin’s average 30-day and 180-day volatility in 2021 are both higher than any other period (only 2 cases higher).

“The volatility is still too high,” said Acheson on the phone. “Investors are beginning to accept that this is not a defective product, but an asset to the market.”

Additionally, Bitcoin has limited supply, and the amount of Bitcoin available for trading is dwindling as more investors buy and hold long-term, Acheson said. More than 75% of the bitcoin in circulation is held by long-term investors, and that number is set to increase in 2021, according to data from company Glassnode.

Crazy fans insist that digital currency is going to be something big in the financial world. However, the persistent volatility shows that Bitcoin is only in its early stages. It’s hard to know how Bitcoin will perform, Dan Gunsberg, co-founder and CEO of Trading platform for virtual currency derivatives hxro.trade said. According to Dan Gunsberg, Bitcoin will have to go through the cycle that stocks went through during the dotcom madness.

“Just as the earth’s crust forms, they take time,” says the expert. “Bitcoin takes time to form and to become stronger with each cycle.”