When Bitcoin first came into existence, its prime objective was to replace the existing financial system. And it is still in the process of doing that. To be used as a medium of payments and transactions, Bitcoin is still very volatile, making it impractical. Just imagine going to a store to buy a 4k tv, and you see it costs 0.1 BTC. You come back home thinking you will get the tv at the weekend. But now you go back, and you see the price has increased by 50% because BTC is down. How will that feel? You know the answer, and that is why Bitcoin is still not used as a currency. Now many of you might be wondering, that’s gotta change, right? Well, according to Deutsche bank, it won’t. In fact, they say Bitcoin will stay ‘ultra-volatile’ forever.
Why will Bitcoin stay ‘ultra-volatile’?
Analysts suggest that the volatility of Bitcoin is going down. And as time passes by, while it gets more acceptance, it will be stable enough to be used as a payments method. But Deutsche Bank says that Bitcoin will stay as it is due to the limited readability that comes along with it. There is a very high liquidity problem with Bitcoin. This means out of the total coins in existence; only a small amount is in circulation. And most of the coins are being stored in whale accounts, making them illiquid. This makes the market highly volatile as Bitcoin is susceptible to huge price swings with small transactions.
We just saw this when a rumour that $1 billion worth of BTC went on sale on an exchange, the price of Bitcoin fell by 10%. According to the bank, the 21 million supply limit that we actually consider to be a benefit of Bitcoin is a problem for it. In future, as companies keep acquiring more Bitcoin, the liquidity will further drop and make it even more volatile. One important thing to know is Bitcoin’s volatility compared to other investment assets. In that comparison, the cryptocurreny goes ahead with much fewer fluctuations.
Reason for Bitcoin’s price swings
Bitcoin’s price increase is driven by one and only one factor alone, that is demand. The supply of Bitcoin is limited, and therefore, there is no doubt on the supply being more or less, but the demand is, in fact, susceptible to changes. And hence there are huge price swings depending on how the demand for Bitcoin goes up or down. But even after all that, Bitcoin’s market capitalisation of $1 trillion makes it an asset and too important to ignore. But yes, one thing is more sure that if the price swings don’t decrease, then using it as a currency isn’t viable.
Do you think that Bitcoin will stay ‘ultra-volatile’? Or will it get more stable with time? Let us know in the comments below. Also, if you found our content informative, do like it and share it with your friends.
Also, Read: How much Bitcoin does Elon Musk own?