What is Bitcoin?
Bitcoin is a cryptocurrency and a payment system, first proposed by an anonymous person or group of people under the name Satoshi Nakamoto in 2008. It uses peer-to-peer technology to operate with no central authority or banks, managing transactions. The issuing of BTC, the blockchain’s native currency, is carried out collectively by the network.
Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin, and everyone can participate. Through many of its unique properties, Bitcoin allows exciting and unique use cases.
Why is Bitcoin Popular?
Bitcoin is popular for a variety of reasons.
First, it is a decentralized currency, meaning it is not subject to the whims of governments or financial institutions. This makes BTC attractive to investors and users who value independence and privacy.
Second, Bitcoin is relatively easy to use and can be stored securely in a digital wallet. Accordingly, it is convenient for people who want to make online purchases or transfer money without going through a bank or third party.
Third, Bitcoin has a limited supply, making it a valuable asset that can be used to store value in times of high volatility.
Fourth, BTC is a very volatile form of currency, meaning that its value can fluctuate dramatically in a short time. This feature makes BTC an ideal choice for retailers or institutions looking to make a quick profit.
Top Reasons why Bitcoin is Volatile
As aforementioned, Bitcoin is comparatively volatile versus traditional assets primarily because of the following reasons:
- Developing Regulations: Bitcoin is not subject to any central authority or regulator. Therefore, there are no official guidelines or standards for pricing. Coupled with fragmentation in adoption, the state of Bitcoin regulation makes it challenging to track and, in many instances, predict trends. Because of this, BTC has different pricing depending on the region. For example, there is a clear divergence in price between the U.S. and South Korea, leading to the “Kimchi Premium”.
- Low Adoption: While Bitcoin is gaining more mainstream acceptance, it still needs to be widely accepted as a form of payment. This limited acceptability means that there are fewer buyers and sellers in the market, which can lead to more volatility since the markets are thinner with, specifically, low participation from institutions cumulatively managing trillions in various parts of the world. The primary reason why this has been observed is that Bitcoin, and crypto at large, are considered new asset classes that are being refined. Therefore, most institutions and regulators are taking a wait-and-see approach as they are also mandated to protect citizens.
- Speculative Activity: A large portion of Bitcoin trading is driven by speculation rather than actual utility. This speculation can lead to wild swings in prices as investors buy or sell based on their perceived future value of the currency.
- New Technology: Bitcoin is a new and relatively untested technology using blockchain technology. As such, there is a lot of uncertainty surrounding its prospects and potential applications; and especially whether it will revolutionize remittance as a borderless alternative enabling faster and cheaper fund transfers. This uncertainty, due to the newness of the asset and the underpinning technology, can contribute to volatility indirectly as liquidity is lower due to low institutional participation.
