Why Is Bitcoin Price Still So Volatile?

Bitcoin’s price is way down from its high of around $11,000 USD earlier this year. At the time of this writing, the price is currently around $7,000 USD. Yet Binance CEO Chengpeng Zhao says the more than 60% price crash of Bitcoin in March is not because of the COVID-19 crisis. He speaks to the fact that the current crisis the world finds itself in is not the same as the global economic crisis that took down major banks in 2008 and saw the housing market in America plummet. Zhao believes detractors and investors alike are being too quick to pull the trigger on diagnosing why the price is swinging so much based on larger economic factors.

While some believe that Bitcoin is beginning to prove that it is inversely correlated with the stock market, the reality is the sample size the market has witnessed so far is really small.

The real question is what really is making the price so volatile. It’s easy to see that the global economy is currently in turmoil over the coronavirus and that the virus itself is causing people to panic, but they’re slightly more to it than that.

The Halving Event Run Up

Bitcoin’s blockchain is about to go through its third halving event this coming May. The network is preprogrammed to halve the number of new bitcoins going out into circulation every time 210,000 blocks have been mined. At the present moment, both crypto enthusiasts and skeptics abroad are waiting on edge to see what happens as we approach block number 630,000.

What we know for sure will happen is that the number of new Bitcoin’s being rewarded to miners per block mined will drop from 12.5 BTC to 6.25 BTC. In theory, a drop in supply should increase demand, but it may not be as simple as that.

The first time Bitcoin’s supply halved was back in November 2012. Nobody knew what to expect because there was no historical precedent for how the drop in supply would affect the price. In the first three months following that event, the price went up 174%.

Four years later, the second halving event took place on July 9, 2020. One would think that the same level of price appreciation would occur, if not accelerate. That wasn’t the case. The price actually went down in the first three months by 5%. That said, by the end of 2017, one Bitcoin was worth almost $20,000 USD, representing a price increase of more than 2,800%.

So Why Did The Price Plummet to $3,100 in March?

As much as many libertarians and purists want to believe that this is Bitcoin’s time to shine and it’s time for government to take a backseat. That all of these bailouts and economic stimulus packages being rolled out across the world won’t work, the reality is that Bitcoin isn’t quite inversely correlated with the rest of the broader market.

The selloff was sparked by nothing more than fear of a growing epidemic that could turn into a global pandemic soon if it’s not at that point already. It also might have occurred just because miners aren’t going to earn as much Bitcoin for their efforts going forward and they might have sold off as a chance to get out the price being at five digits.

The reality is there are many factors involved in the plummeting of the Bitcoin price and now it seems to have found a middle ground. That is until the world gets an update that the epidemic is over, or investors find out that the current price really just represents a huge pullback that springboards the value of Bitcoin past $10,000 and well beyond. Only time will tell what happens next, as is always the case in the fast-moving world of cryptocurrency and blockchain technology.

Jack Choros

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