Understanding Bitcoin Volatility

By Jim Beviglia in Tips & Advice on November 16, 2018

9

Minute Read

Bitcoin volatility is something that seems to be as much a part of the digital coins as any of the positive aspects attached to them. The price tends to swing wildly in one direction or another, often when investors and adopters of the coins least expect it. It can be extremely disorienting, for those who have already become involved with Bitcoin or for those who are thinking about it.

It seems as if every time that Bitcoin enters a period of relative price stability that another big price swing is coming just around the corner. Just this past week, as some experts were noting how the price of Bitcoin had solidified at a kind of plateau for a bit, a sudden drop in price shook the market. And, as is usually the case, the entire cryptocurrency market fell in lockstep with it.

For many investors, Bitcoin is a wild ride that they feel isn’t worth taking.

Although they can’t deny that the coins have risen to unreal levels considering their humble beginnings, there is still the feeling that, at any moment, the bottom could drop out. As a result, they stay away, letting others take the chances on Bitcoin.

Even those who do invest in Bitcoin tend to be antsy when they see some sort of negative news in the cryptocurrency market at large. Indeed, the most recent price dip seems to have been caused by something that didn’t have much to do with Bitcoin at all. Just as people bought into Bitcoin during the huge run-up to its peak because of so-called FOMO (fear of missing out), so too do people sell it off because they see others doing it.

Yet Bitcoin has proven resilient, always able to bounce back when things get tough. And there are many who believe that the best is yet to come for Bitcoin, that any price dips just provide an excellent opportunity for people to buy in at a nice price. These investors find ways of ignoring the volatility, or, even better, letting it work for them.

In the following article, we’ll attempt to explain just why Bitcoin is such a volatile asset. We’ll also go into why the coins still have great potential and why ignoring Bitcoin volatility might be the best way to deal with it. Finally, we’ll show you ways to use Bitcoin so that the volatility doesn’t really have an effect on you at all.

Why Is Bitcoin So Volatile?

That’s a bit of a tricky question, because there isn’t any one answer that will suffice. For those who aren’t aware of it at all, Bitcoin is a form of digital coin, or cryptocurrency, that allows people to legally pay for things via the internet without the need for an overseeing third party. Transactions with Bitcoin are fast, cheap, secure and private.

But it is also an investment asset. The coins have value attached to them as if they were stocks, even though, unlike stocks, there is no underlying company issuing Bitcoin. Instead, new coins are created with each transaction on the Bitcoin network.

Value of the coins is based on supply and demand, as is the case with stocks. But Bitcoin volatility, which is a measurement of how often and with how much range the price of the coins move, tends to outstrip even the most volatile stock. Here are some reasons why that is:

The Bad News Effect

Bitcoin tends to react to news about cryptocurrency more than a stock might when news about the underlying company is released. For example, the most recent dive in Bitcoin prices was apparently caused by news of a potential event with one of its competitors, Bitcoin Cash. Bitcoin Cash, which was created as a kind of offshoot of Bitcoin, is ready to split off into two separate coins due to a dispute among developers and miners.

As a result, the entire cryptocurrency market has been thrown into tumult. People who are worried about cryptocurrency as an entity tend to immediately react by selling Bitcoin, since Bitcoin is the most well-known and valuable of all coins. Even when Bitcoin itself is moving along minding its own business, these tangential events tend to shake it up as well.

Small Sample Size

Most of the major stocks have been around for a long time, and have established a baseline for price performance. Price moves tend to be more gradual with these stocks as a result. Bitcoin, on the other hand, is only a decade old, and, as a result, Bitcoin volatility almost has to be higher because of the math of it.

Think about it in terms of baseball batting average. A player with just ten at bats can raise or lower his batting average significantly in a single game, while those with 500 at bats cannot. Such is the case with Bitcoin, which is still in the process of wild price swings that most newbie stocks also have to deal with in their infancy.

Institutional Pressure

This is the main driver of Bitcoin volatility. Bitcoin is a decentralized currency, which means that there is no government or business controlling it. Whether it can stay free of that kind of oversight remains to be seen.

Those who tend to bail out on Bitcoin or short it are likely fearing the day when these large institutions will try and put a stop to the coin. But those folks are probably looking at it the wrong way. It’s more likely that Bitcoin will eventually be adopted in some manner by those institutions, at which point it will gain mass acceptance.

Positive Signs For Bitcoin

We’ve just given you reasons why Bitcoin volatility exists. And, to be honest, it’s likely going to sustain for quite some time yet. There isn’t any immediate change on the horizon that will immediately cause any of those three factors we just talked about to dissipate.

That said, the overall tea leaves for Bitcoin seem to be reading much more positive than negative. Right now, the price is being driven by speculative investors who aren’t really doing anything more following others buying and selling the coins and then reacting in kind. That’s why Bitcoin volatility tends to be so drastic on certain occasions as this past week, when the price fell below $6,000.

Yet at some point, Bitcoin will start to assert itself and make itself impossible to ignore. The benefits of using it are simply too many and too impressive. And there are already signs that it is starting to establish itself at a level where Bitcoin volatility could become a thing of the past.

Chief among these signs:

  • Institutional Acceptance:

    More and more investment firms, hedge funds, and other groups with massive amounts of capital, are starting to put their funds behind Bitcoin and other cryptocurrency initiatives. Bitcoin, to this point, has largely been a Main Street phenomenon, driven by retail investors. Once Wall Street gets completely behind it, all bets are off as to how high it can go.

  • More Adoption:

    What will eventually eliminate the larger swings of Bitcoin volatility will be when people start circulating the coins by spending them and businesses help out by accepting them. That is happening more readily each day. As a matter of fact, as we’ll talk about in a bit, the gambling industry is well ahead of the curve on this front.

  • Still A High Ceiling.

    Many people point to when Bitcoin rose above $20,000 per coin in 2017 as an example of how high it can go. But consider the notion that Bitcoin saturation is still at a minimal level. Now consider the fact that the coins have the potential to one day replace bank cards, credit cards, and even cash, and you can see that $20,000 is a modest estimate for what the price might be down the road.

Dealing With Bitcoin Volatility

Again, these positive signs bode well for the lessening of Bitcoin volatility. But the tipping point for when Bitcoin finally starts to level off, ideally at a price that is much higher than where it is stands right now, is still probably some period of time down the road. As a result, you need to find some ways to deal with Bitcoin volatility.

If you try to simply leave Bitcoin out of your portfolio, you are doing yourself a disservice. The potential is simply too juicy. It’s better if you can use one of the following methods to keep Bitcoin volatility from driving you completely up the wall.

Thinking Long-Term

You might try to trade Bitcoin actively, but that seems like a difficult thing to pull off without intense technical analysis and constant monitoring of the markets. But if you really believe in Bitcoin, you can get around volatility by simply ignoring it. And you do that by looking at Bitcoin as a long-term investment.

If you simply buy some Bitcoin and, in essence, forget about it, volatility can’t really touch you. The only way you could really get hurt is if, somehow, Bitcoin completely disappeared, and that’s too big a cat to get back in the bag at this point. Whatever the price might do, in terms of rising and falling, won’t matter to you if you have it stored safely away in a digital wallet.

Besides, the reason that you should be investing in Bitcoin is because you truly believe in its potential. If you’re doing it because others are talking about it or you think it’s the hot thing at the moment, you are setting yourself up for disaster, as you would be with any investment you make for those reasons. But if you’ve really studied Bitcoin and think that it is the future of personal finance, having some stored away will pay off greatly someday, regardless of where Bitcoin volatility is at right now.

Balancing Your Portfolio

People always talk about volatility as if it is a bad thing. And it is if Bitcoin were your only investment and you were resting the entirety of its financial future on its rise and fall. But what if it were included with other investments as part of a larger portfolio?

If you’ve learned anything about investing over the years, it’s likely that you need to diversify. Diversification requires putting together a basket of assets that come from all different sectors of industry with competing and complimentary characteristics. If you do this, you don’t have to worry about a single element of your portfolio bringing you down.

When you think of it in those terms, having a little volatility in the portfolio actually isn’t a bad thing. That’s especially true if you balance it out with assets that are extremely stable and show little volatility. Too many of the latter wouldn’t be good, either, since you would leave yourself little room for growth.

Bitcoin volatility means that the coins can drop in price at any time, but it also means that they rise quickly as well. Having that as part of a balanced portfolio can be a good thing. And, should the drop in prices occur at some point, your other investments will be there to stabilize everything.

Use The Coins

It is easy to get caught up in Bitcoin as an investment and completely forget about what they were meant to do in the first place. Bitcoin makes paying for things and receiving payment for things extremely easy. You don’t have to share your personal information or expose all the money in your checking account.

Settlements with Bitcoin payments are completed in a fraction of the time that it would take if you were using other methods of payment like bank cards or credit cards. And you can find more and more avenues that accept payments via Bitcoin these days. In addition, you don’t have to worry about boundaries or borders, because Bitcoin is an international currency, connecting people all over the globe.

When you get in the habit of spending Bitcoin, you likely will stop fixating on the daily price. After all, chances are that you use fiat currency every day (dollars, Pounds, etc.) without ever considering that that form of money is constantly rising and falling in value. Their value is changing, of course, which is why there is such a thing as the Foreign Exchange market.

The other positive about using Bitcoin, besides what it can do for you in terms of convenience, is the way that it circulates the coins throughout society. That will help the coins on a macro level, which could eventually lower Bitcoin volatility. It’s a kind of self-fulfilling prophecy that works in your favor either way.

Bitcoin And Gambling

Perhaps the best way to think about Bitcoin is as a multi-faceted asset. You can invest in it and profit from it in that way. Or you can take the coins and use them as part of your everyday routine, which is how they become more ingrained in society.

One of the ways that you might not have considered in terms of circulating your Bitcoin is by gambling with it. You might joke and say that investing in Bitcoin is a kind of gambling anyway, and you wouldn’t be wrong. But the truth is that, if you are someone who likes to put a little money down on sports or in casinos, and you have some Bitcoin handy, you can really benefit from using it on a gambling site.

If you don’t have any Bitcoin, that’s easy enough to change. Here is a step-by-step process on acquiring some.

  1. Get A Wallet: Bitcoin wallets are relatively easy to find, because it is the most popular of all cryptocurrency coins. If you want to store the coins, you should invest in a hardware wallet, since this will be the most secure storage system. You can get away with a downloadable wallet as long as you don’t plan on keeping a large number of Bitcoin in here.
  2. Find A Coin Exchange: Again, Bitcoin makes this easy for you, since most of the exchanges deal in Bitcoin. You should ideally pick one that is well-respected and has proven to be a safe environment for Bitcoin buyers. You also could store your Bitcoin in many exchanges, but that isn’t recommended because of hacking concerns.
  3. Buy Your Coins: It’s as simple as paying the market price for Bitcoin. Ideally, you can time it to when there is a bit of a swale in the market so that you don’t spend top dollar. Also, keep in mind that you can buy fractions of Bitcoin so that you’re not on the hook for nearly $6,000 to pay for a single coin.

It’s as simple as that. Once you have your Bitcoin in place, you’ll immediately find out all of the cool ways in which Bitcoin makes online gambling a snap. And it even makes it more lucrative if you play your cards right, literally and figuratively, as well.

That’s not to say that you need to take all of your Bitcoin and put it up for grabs on the roll of a dice or hoping to cover some point spread. Using moderation in all things is good advice to follow in life, and it certainly applies to Bitcoin. Take some to gamble, take some to spend elsewhere, and put some away as an investment.

In that way, you’re kind of doing your own version of diversification. And what you’ll find, once you start to use the coins in this manner, is that your concerns about Bitcoin volatility will lessen. In fact, you might be able to add to your Bitcoin collection if you start winning some money on casino websites.

For example, you can take advantage of:

  • Sports Books:

    These sites will allow you to bet on your teams and games of choice.

  • Online Casinos:

    Play table games, slot machines and all the rest of the games that you can find at your favorite casino online.

  • All-Purpose Sites:

    Get all the variety that you want at sites like these, which might allow you to bet on a horse race one minute and then play video poker the next.

Basics Of Bitcoin Gambling

Choosing a site for your bitcoin gambling endeavors is always a tough task, but we can give you a head start. Make sure that the site is reputable, includes access to all the wagers that you want to make, and will solve any problems that you might have. If you can find a site like that, you’ll start too see how using Bitcoin for gambling will make the entire experience more pleasurable and beneficial.

Advantages Of Gambling With Bitcoin

  • Smoother Withdrawals And Bonuses:

    When you put Bitcoin into your gambling account as a way of funding it, it will arrive in an instant. In the same way, you should be able to settle up in a much quicker fashion when you decide to withdraw funds. After all, Bitcoin withdrawals and deposits don’t have to be approved by a bank or credit card company before they can go through and become official.

  • Better Bonuses:

    When you do your gambling with Bitcoin, you’ll find that the sites wanting your business will really reach out to you with some excellent offers. In fact, part of your decision-making process for which site you will frequent should come down to which will offer you the most aggressive bonuses. If you go into a site without a solid bonus structure already in place, you are doing yourself a major disservice.

  • Greater Anonymity:

    In most cases, you can wager with Bitcoin and never really reveal a shred of information about yourself. Even more important is the fact that you only have to reveal the amount of Bitcoin that you want to spend on the site. Compare that to credit cards or bank cards, where all of your funds must be exposed for even a small transaction.

Disadvantages Of Gambling With Bitcoin

  • Unstable Value:

    We’ve already talked about how you can mitigate this by spreading your Bitcoin around between gambling, spending and saving. But it must be noted that the possibility of a price surge after you’ve committed money to your Bitcoin account could mean less of a profit for you from the coins overall.

  • Less Choice:

    Even though most large sites now include some sort of Bitcoin deposit program, you will run into some gambling sites which don’t allow you to pay in this way. It might only hurt your variety when it comes to a very specific gambling opportunity. The major sites that do accept Bitcoin pretty much have the bases covered.

  • Possible Technical Confusion:

    For some people, any kind of technology is a bridge too far. That said, Bitcoin is easy to understand and quick to learn, even for the non-technological among us. This really shouldn’t stop you.

Conclusion

Hopefully, Bitcoin volatility isn’t something that will keep you up at night. As you can see, a great deal of overcoming it, for however long it lasts, is devising strategies to cope with it. What you’ll hopefully find is that any time spent worrying about Bitcoin volatility is less time that can be spent taking advantage of all the coins have to offer.

Jim Beviglia

Jim Beviglia joined Gamblingsites.org as a staff writer in August of 2018, parlaying his years of freelance writing into contributions on a number of different topics. He handles the sport of horse racing for Gamblingsites.org, and the intersection between the worlds of cryptocurrency and online gambling in a weekly blog. For his full-time job, Jim handles the television and track announcing duties at a harness racing establishment near his home. He spends as much time as possible with his wife Marie and daughter Daniele, both of whom are used to hearing his long-winded monologues about either the struggles of his Fantasy baseball team or which Beatles song is definitively the best.

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