The price of Bitcoin has a volatile track record and is as well known for its sometimes extreme price fluctuations as it is for the ground-breaking blockchain technology on which it runs.
The world’s leading cryptocurrency shed more than $10,000 between Friday and Monday, reaching as low as $33,184, meaning it’s currently worth less than half the record high it experienced in November 2021.
It’s happened in tandem with a stocks sell-off, yet Bitcoin’s price swings are typically more pronounced than those of other assets.
Why this is the case is the subject of continual debate. For me, it comes down to the fact that Bitcoin is the only free market left in the world.
It never closes, there’s no central authority governing nor manipulating it. It operates across national borders and is above political divides. It does not need to be printed and no one needs to stash it away in vaults because it is collectively built and maintained, and transactions are monitored across the entire truly transparent network that simultaneously guarantees privacy.
By its very nature, Bitcoin is completely neutral. Its value is reliant solely upon the market forces of supply and demand.
Compare this to the world’s reserve currency, the US dollar, which is controlled by one country, one political and economic agenda. And, the US government, unsurprisingly, uses the currency to protect its own interests.
Perfect free market
So, with Bitcoin being arguably the world’s only perfect free market, with no overall authority to protect, inflate or deflate it, there come bouts of major turbulence – and I don’t think this needs to necessarily be a bad thing.
The so-called ‘cryptocrash’ is creating a lot of noise but volatility in the cryptocurrency market should be treated in the same way as turbulence in any other market.
As with any type of investing, the investor’s best tool in order to sidestep potential risks and take advantage of opportunities that arise in times of market volatility, is diversification.
Some of the shrewdest investors have consistently utilised market volatility as major buying opportunities in traditional financial markets – and the cryptocurrency market should be no different.
When used effectively and efficiently, volatility can be an extremely powerful investment strategy.
I would suggest that investors ignore the hysteria and focus on the fundamental inherent traits of cryptocurrencies that are making them ever-more attractive.
These characteristics include that they’re borderless, making them perfectly suited to a globalised world of commerce, trade, and people; that they are digital, making them an ideal match to the increasing digitalisation of our world; and that demographics are on the side of cryptocurrencies as younger people are more likely to embrace them than older generations.