I think you know by now, that Cryptocurrencies go up and down in price, like really fast as well as how to trade cryptocurrencies. Alone in the year 2017, we have seen a price increase of over 1300% from 1000 Dollars per Bitcoin, to 17.000 Dollars per coin. This is a humongous increase in price.
While this may sound all good, there are many risks attached to the price of Cryptocurrencies.
First of all, what goes up must come down, as the old saying goes. And that is also true in the hyped Cryptocurrency market.
After the great hype of 2017, Bitcoin’s price went from 20,000 US Dollars per coin to 6,000 US Dollars per coin, which, if you think about it, is almost equally bad as the massive price increase I showed you earlier.
You may wonder, why Bitcoin’s price is that volatile compared to other investment classes, and there are many reasons for that.
Reason one being, that the Cryptocurrency market is a very new one, and the general public is very uneducated.
Trust me, ask random people on the streets and they won’t know what the difference between Bitcoin and PayPal is.
For someone who is involved in the Crypto-space, this will sound very funny, but same as with the internet, people grasp new and abstract concepts very slowly.
This means, that the masses are very easy to be manipulated, by the mass media for example.
You could see that phenomenon very clearly in December of 2017.
Bitcoin was all over the news, and literally, everybody was talking about it.
That, in turn, exposed many people to the Cryptocurrency market and many people bought Bitcoin, which increased the price even further.
This cycle, of the media, wondering over the humongous Bitcoin price, and many people buying Bitcoin, continued so long until we reached a point where one Bitcoin was worth 20,000 US
Dollars in late December of 2017.
At that point, the market was already so overpriced for that point in time, that many long-term investors cashed out and sold their Bitcoins.
This, in turn, set off a chain reaction of panic-sellers, who bought Bitcoin at high prices and feared to lose their money.
I hope I could illustrate to you clearly, how the public can be manipulated and thus create these huge ranges at Bitcoin’s price.
The second reason I think the Cryptocurrency market is so volatile is, that there isn’t any real-value, by which you can measure how much one Bitcoin “should” be worth, like if you invest in a company.
This is caused by the fact, that what makes Bitcoin, and other Cryptocurrencies useful is by how many people they are used.
Also, know as the Network Effect: The more people use Bitcoin, the more valuable it becomes because you can pay for anything and anyone with Bitcoins.
Was the price of 20.000 US Dollars per Bitcoin justified by its usage in December of 2017?
NO! Hardly anyone really paid with Bitcoin to actually buy something, or to send money to their friends.
Bitcoins’ main value is what it is because of what it could be used for in the future.
Bitcoin is speculative because all the people who are investing in it (and most of the other Cryptocurrencies, too) believe that Bitcoin will become more used in the future, which will really increase its price.
That’s also the very definition of “speculating”, because everybody is “speculating” that Bitcoin will be used more in the future, and therefore putting their hard-earned money into it.