To give a very short answer Bitcoin investment has not historically been stable. Reasons for this are made up of a number of factors that we will look into below. If you do make a Bitcoin investment don’t be surprised to see your portfolio move quickly up or down.
Historical price volatility
It’s no secret that Bitcoin has been an extremely volatile asset. It’s not odd to see moves of 5%, 10% or even more than 20% up and down in single trading days. Since it started trading properly in early 2012 it has already had 13 separate corrections down of more than 30%.
When you think about how small in relative size it is to other global assets like gold at $7 trillion or Apple at $1 trillion or the USD that is estimated to have a broad money supply of around $14 trillion.
Compared to these behemoths, if you imagine a ‘sea of money’ Bitcoin would look like a speedboat moving up and down with every wave compared to the stable oil tanker representing USD. One day it may become big and absorb the rough seas, but it’s not quite there as of yet.
The supply and fluctuating demand
The rate of new Bitcoins created each day drops by half every four years. Today there will be 1,800 new Bitcoin mined but after the next halving in the summer of 2020 there will 900 mined a day. This supply of new Bitcoins that have been allocated to miners who most probably have electricity, hardware depreciation and other operating expenses to be paid. To pay their bills miners are most likely selling a good portion of 1,800 coins mined each day.
On the demand side, there have been times of FOMO (Fear of missing out) with a complete lack of demand, and fear in the market.
It’s an emerging asset class
Over the past seven years, Bitcoin has shown itself to be an emerging asset class with exponential growth in market cap. It has moved strongly from $1 billion to $10 billion to its current level around $100 billion in total market cap. These ten-fold jumps in market cap are more common when looking at the adoption rates of technology (eg: email, smartphones, social media, etc…).
Bitcoin investment has been pretty volatile, but, in the long run, volatility seems to get smaller with each exponential move up.
Advise if investing would be to sit tight and hold for the long term. Bitcoin is fundamentally a different type of asset than any other on the world stage. Those who have waited over the long term may have seen the price go down, but history has shown that every crash was eventually followed with a new bull run that took price to new all-time highs.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.