Bitcoin Madness: What's Driving the Wild Price Swings?
Bitcoin prices have gone completely off the rails in the last two months. Climbing from a respectable $5,000 to an almost unimaginable $19,000 for the briefest of moments before resting at its current $16,000 or so. What is behind these rapid, neck breaking price swings that are keeping Bitcoin traders up all night? Read on as we go through a few possible factors that may be influencing the swings.
The positive feedback loop
In a piece that appeared on CNN Money at the end of November, the author described what he called a positive feedback loop. This is how it works. The price of Bitcoin goes up. This causes more interest in Bitcoin, and attracts more new investors to it. This causes the price to go up. The increase in price causes more interest in Bitcoin, and so on.
The effect of this process on Bitcoin prices is simply that higher prices inspire even higher prices. However, as we saw in the panic that occurred in the middle of 2017. Prices dropped due to panic selling, which caused more panic selling, and further price drops. Basically speaking, hype, or lack thereof, can have a huge influence on Bitcoin prices.
Exchanges in Asia
Several news outlets have been reporting that massive trade volumes and demand are coming out of Japan and South Korea. The government of South Korea is so nervous about Bitcoin that it even started issuing warnings that it may encourage youth to commit crimes and steal in order to get more Bitcoin.
Fear mongering aside, what is driving the citizens of these two nations into a Bitcoin frenzy? South Korea and Japan are very well known for their tech-centric, forward thinking populace. Their growing acceptance could just be a byproduct of this mindset. Some news outlets have claimed that the desire, at least in South Korea's case, is tied to fears of the North Korean Kim regime, but this seems to be conjecture at best.
The big boys come out to play
Another very important factor in this latest round of price madness is that of the big banks and investment companies that are now taking Bitcoin seriously. In recent days, CME has announced the impending listing of Bitcoin futures, NASDAQ has followed suit, and JP Morgan has changed their stance and is now claiming that Bitcoin could be better than gold.
The effect of big banks joining in the fray is two-fold. The first is obvious. Big banks actions tend to be watched closely. If they are seen getting into something that is somewhat unorthodox by traditional definitions, investors at large will take notice. The result is growing interest and hype.
The second effect will be based on what the banks actually do. In order for these listings to occur, in many cases the banks will buy up large amounts of Bitcoin. These potentially huge, multi-million or even billion dollar movements could have wide spread effects on the Bitcoin market which is comparatively small.
So is it positive feedback looped hype, rapid adoption in Asia, the influence of banking titans, or perhaps all of these things that is moving Bitcoin upwards at sickening speeds? No matter what the cause may be, its clear that Bitcoin has still not yet found its stable price point, and may not yet find it for years to come.
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Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.