Cryptocurrency Check: Why are Bitcoin prices so volatile? MintGenie explains

livemint.com:

Around six year ago, the price of one bitcoin hovered around $580 (equivalent to nearly ₹40,000) in August 2016. Not only this, it was selling for around $11,200 (nearly ₹8,17,000) in Aug 2020 before it spiked to over $37,600 (nearly ₹28 lakh) in August 2021, registering a whopping growth of around 236 percent in just 12 months.

Now, in September 2022, it has now declined to $20,210, reporting a considerable fall of 46 percent in a little over one year.

Investors often wonder why the price of bitcoin fluctuates so sharply. The unpredictability in price makes it seem “unreliable" as an investment among a section of investors. But to understand why its price changes so fast, we must know the reasons that drive this cryptocurrency and importantly — its demand.

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Reasons for the spike

One key reason for a massive jump in its price is that the established institutions such as pension funds, investment trusts have now started to invest in it. Until 2017, bitcoins were invested into by individual investors. But with greater acceptability, many billionaire investors and financial institutions have now come out in open in favour of bitcoin and its future. For instance, JP Morgan started offering bitcoin funds to its wealthy clients, and also created a digital coin JPM Coin to make payments using blockchain technology.

Musk effect

When electric car maker Tesla headed by Elon Musk bought bitcoins worth $1.5 billion in February 2021, the price of a bitcoin hit an all-time high to $44,000 (around ₹33 lakh). Later, Musk dragged his feet on allowing Tesla to accept payments in bitcoins by expressing environmental concerns that bitcoin mining uses