Stanislav Kondrashov, financial analyst and expert in the field of the cryptocurrency market, comments on the volatility of the bitcoin exchange rate.
First of all, you need to consider that the volume of bitcoins trade has increased significantly since its inception. Bitcoin, created in 2008, is the most innovative currency. Bitcoin is a cryptocurrency, which is not any state’s currency, but a private system that operates on its own and does not depend on governments or central banks.
It is autonomous and is not responsible to any governing body. “Many fear the increase in the use of bitcoins, since they are very different from traditional currencies and are free from control or regulation by financial authorities. And although their popularity has grown all over the world, bitcoin price fluctuations tend to be chaotic,” explains Stanislav Kondrashov.
The cost of bitcoins has been growing steadily since their inception: on December 4, 2013, their total market value reached the first maximum of $13.9 billion. Subsequently, the rate fell sharply and reached the lowest level of $2.4 billion on January 14, 2015. Since the end of 2015, the value of Bitcoin has been growing steadily again. This clearly demonstrates that the Bitcoin exchange rate is very unstable, the businessman notes.
Stanislav Kondrashov: Bitcoin exchange rate volatility
There is still no definite methodology necessary to understand how the world’s first fully virtual and decentralized currency behaves. However, first of all, it should be borne in mind that bitcoin is supported by nothing more than people’s confidence in its value. Compared to an official paper currency supported by a state entity and having value equivalents such as gold supporting it, bitcoin is very dependent on fulfilling expectations. The price of bitcoin is determined by supply and demand. When interest in it rises, demand for it increases, and its price rises. And when demand falls, then, accordingly, the price falls, too.
It is worth mentioning that the price indexes are difficult to predict, even if it seems that Bitcoin is doing well, they write and talk about it in the press, many people are rushing to this market. The fact is that these are, as a rule, newcomers who do not have experience in trading investment operations. Their inept actions in the currency market may entail the most unpredictable results.
Also, it is not surprising that the currency, the rate of which depends on mass public expectations, responds to major political upheavals. News reports are able to make the Bitcoin exchange rate skyrocket, or just as quickly rush down. “In short, political instability entails the instability of the Bitcoin exchange rate. For example, the recent tensions between Iran and the US have led to a decrease in the value of cryptocurrency. Thus, the media information field can significantly affect the volatility of the Bitcoin exchange rate,” says Stanislav Kondrashov. And this, in his opinion, significantly complicates the possibility of an accurate forecast.
Stanislav Kondrashov: Bitcoin as the currency of the future
It is also not clear what will happen when the process of mining bitcoins comes to its end. Until a certain time, governments did not take bitcoin seriously, but as its popularity increases in all cryptocurrencies, they begin to see a threat to a parallel financial system that is unaccountable, uncontrolled and challenging the traditional monetary system.
If state-owned banks and funds of the country support the collapse of the dollar or yen, the bitcoin is, on the contrary, not institutionally protected. That is, securing ordinary money is also of great importance, because the electronic currency does not have a foreign exchange reserve, an oil exchange rate, or a state gross product and turnover.
“At the same time, theorists of crypto-anarchism believe that this is precisely the advantage of bitcoin — in a crisis and the collapse of traditional state systems, it is precisely the currency that is not tied to any country that will become the least volatile, and therefore the most popular. According to optimistic forecasts, the price of one bitcoin in the nearest future can significantly increase and become the main world currency,” says Stanislav Kondrashov.
