Two Factors That Can Affect The Stability of Bitcoin Price
Seven years ago, the world’s first digital currency came into existence. Bitcoin took a significant number of people by storm as the digital currency began to prove its vitality in our rapidly developing world.
Bitcoin has experienced superb growth so far and a fair share of substantial hiccups along the way, most of which it has managed to overcome.
Bitcoin’s struggle to obtain a steady foothold in the financial markets has been a rollercoaster ride that has left bitcoin price looking more volatile than the most unstable equities.
The digital currency has experienced quite a tumultuous year where it has risen from a two-year low of $214 to $623.24 – a rise of 191%.
To put things in perspective, the lowest drop that was recorded at the beginning of the recession in 2007 was when the S&P dropped by 50%. This leaves many in doubt over the stability of bitcoin as a long-term investment plan.
Why Bitcoin Price is Struggling for Stability
The reason why equities (and the financial market in general) are capable of maintaining some semblance of stability and regularity is because of the large number of powerful forces rallying behind it.
Unlike bitcoin, the market typically does not exhibit drastic reactions to every minor event.
Backed by the Federal Reserve itself, a healthy trading volume and more than a few of the 1% (the incredibly wealthy), markets generally tend to remain unchanged through most of the minor events.
When it comes to bitcoin, however, there are no significant backings to speak of, and therefore, it cannot even remotely compare to the stability of the most volatile equities in the market.
A few solutions could, however, fix this problem permanently for the digital currency although the journey to stability will be far from easy.
Here are two factors that can positively impact on bitcoin price.
1. The Adoption of Bitcoin as an Underlying Asset for Financial Instruments
At the moment, bitcoin is viewed as no more than currency, digital or not. For it to get the boost towards stability that it needs so much, the digital currency should present itself as an investment product.
To elaborate, once people begin seeing bitcoin as the lucrative long-term investment plan it potentially is, more and more investors will come in, thereby stabilizing bitcoin price dramatically. Garnering this interest from investors is, however, an uphill task.
A string of high-profile hacks and bitcoin thefts made the journey towards stability even tougher as more and more investors became convinced that bitcoin was not the place to put their money. Bitcoin’s security problems notwithstanding, there seems to be light at the end of the tunnel.
In efforts to give bitcoin price more stability and weight than it currently has as a digital currency, plans for a much-awaited bitcoin Exchange Traded Funds (ETFs) are underway.
Undoubtedly, this move will promote long-term investment in the digital currency as the invested funds will only be tracking the performance of the currency’s exchanges.
Not only will this boost bitcoin price stability a great deal, more effort will be made to enhance the security of the cryptocurrency in order to protect the interests of the high-profile investors.
What would follow is consistent growth and stability as more security would attract more investors.
2. Gaining the Reputation of a “Safe Haven” Asset
A safe haven asset can be defined as an investment that is capable of enduring market turbulence without any decrease or increase in value. Gold, for example, tends to retain if not increase its value even in tumultuous market periods.
Although it is still a long way off from rightfully earning that title, bitcoin is not far off. Asset analysts have already begun referring to it as the new safe haven asset mainly because, like gold, bitcoin is more of a commodity than stocks and bonds are.
Experts are certain that once the cryptocurrency becomes an underlying asset for certain financial instruments (such as the ETFs), bitcoin will be heading the same way as gold.
The next ten years should see marked stability of bitcoin price, to the extent of the cryptocurrency surpassing the performance of equities and bonds, according to the experts.
Other than the imminent drop of equities and bonds that has been predicted to occur over the next two decades, the constant growth of bitcoin should play a major role in ensuring the stability of bitcoin price.