There is so much misinformation about Bitcoin and cryptocurrency. One of the more prevalent myths is that you can get rich overnight by trading Bitcoin. Seasoned cryptocurrency investors know the odds of that happening are slim.
The notorious volatility of Bitcoin is one of the main reasons why so many have lost funds in the exchanges. However, the volatility of the digital currency is dualistic. It's one of crypto’s most insurmountable obstacles, yet one of its biggest strengths.
If you want to create a Bitcoin wallet and start trading today, here are a few ways to efficiently manage Bitcoin's volatility.
But Why Is Bitcoin So Volatile?
If you apply the tips on managing fluctuating prices of Bitcoin and other digital coins, it's essential to understand what impacts the frequent and significant price movements. The most critical Bitcoin feature to keep in mind is that it doesn't have intrinsic value.
The traditional methods of valuation can’t be quantified. A lot of Bitcoin’s value stems from narrative and sentiment. There are millions of people across the globe who truly believe in Bitcoin’s value, yet there’s also the mainstream narrative that continuously tries to minimise its value and influence.
Even individuals can drastically impact the price of Bitcoin. The CEO of Tesla, Elon Musk, made waves by purchasing large amounts of Bitcoin, which boosted its price. In a dramatic turnaround, he then declared his company would no longer accept Bitcoin as payment due to environmental reasons.
Understandably, that caused the price of Bitcoin to plummet. Still, these price fluctuations are also part of the appeal of Bitcoin and why, for some investors, it can be an exciting experience. But to have a better outcome on the exchanges, here are a few tips to keep in mind.
No Room for Emotions
When it comes to Bitcoin, opinions can be divisive. There is plenty of fear of missing out and being used as a legitimate investing strategy.
You might even receive advice from Bitcoin enthusiasts urging you not to miss out on an opportunity. Emotionality is a big part of the cryptocurrency realm but doesn't yield impressive results.
Keep in mind that overnight Bitcoin millionaires are the exception, not the rule.
Timing the Market Is a Futile Endeavour
An inevitable side effect of Bitcoin’s volatility is that it’s nearly impossible to make any predictions. If you’re used to timing the stock market as a strategy, that simply won’t work with Bitcoin.
Granted, entering the market at the right time can prove beneficial, but unlike traditional assets, timing cryptocurrency is essentially impossible.
You have to remember that, even though Bitcoin is like any other asset in terms of its fundamentals, nearly anything can depress or prop up its price.
The only way to prepare is to have a mindset that anything is possible and that you might have to hold coins for extended periods of time.
Knowing When to Hold
The high level of Bitcoin's volatility is not a glitch in the system but one of the main features. It is ill-advised to enter the cryptocurrency environment without being aware of this fact.
When Bitcoin is going through a significant price fluctuation, holding money instead of draining your funds is a prudent decision. This phenomenon is well-known in the crypto community.
It's called HODL, meaning “hold on for dear life”. Resisting the impulse to sell when the price dips might save you many headaches in the future.
The good news is that these significant decreases in the price come and go much faster than is the case with the stock market. The price jumps constitute a significant part of investing in Bitcoin, and knowing when to hold and not overreact will pay off in the long run.
Bitcoin Market Is Volatile Because It’s Free
Will the volatility of Bitcoin ever level out? It's one of the most common questions in the financial sector, but no one has a definitive answer.
As the digital currency gains popularity and the adaptability rate grows, one might assume that the volatility will decrease. But given that so many factors impact volatility, no one can say for sure.
So, is it the right time to create a Bitcoin wallet and start investing? That entirely depends on what you want your investment portfolio to be and whether you can handle the crypto market volatility without letting emotions get in the way.