1. Since supply is always going to be limited, other than demand what are other factors that makes the price/value of Bitcoin fluctuates?
So this is one of the hardest questions to answer in Bitcoin because it is such a speculative market.
One reason I think the price has been so volatile over the past 10 years because of how small the crypto industry is. While the current market cap of Bitcoin is around $650 billion, which is quite high (though nowhere close to Microsoft’s $1.32 trillion dollar market cap), in the past ten years the the market cap has been under $300 billion dollars. This may sound like a lot, but it’s not (gold is $12 trillion).
With such a small market cap, Bitcoin has been very susceptible to the whims of large Bitcoin holders buying/selling (which creates huge swings in price depending on whether they buy or sell). In the crypto world such big holders are called whales and they are a problem.
Furthermore, Bitcoin is a new technology and with the rise in new technology comes a lot of difficulties. Bitcoin has had a ton of issues on the exchange side (getting the right licesnces, security of exchanges, etc) that has caused mass hysteria within the industry. Check out this story if you want to learn more about the early exchanges and Bitcoin. When the tech fails or the infrastructure fails, Bitcoin has seen the price dip like crazy.
In regard to Bitcoin volatility on the upside, which is the good kind of volatility, there are many factors that push demand. Here are a few of the narratives that have pushed the price up.
-Bitcoin as Digital Gold
-Bitcoin as an inflation hedge
-Bitcoin as monetary freedom
Besides these narratives, there is also the halvening every four years (which further decreases supply), a large influx of institutional investors, and a never ending supply of countries fucking up their monetary system.
2. Why is Bitcoin so volatile compared to the stock market? If Bitcoin were to crash, what would be the sole reason for that or could there be many possible reasons?
I spoke at length about Bitcoin and volatility above. I will also link to this article which puts Bitcoin’s volatility in perspective. While BTC has been very volatile over the last 10 years, 2020 has been relatively tame and may foreshadow a future where BTC is somewhat stable (post price discovery phase).
To answer your other question, about why Bitcoin would crash, well, the possiblities are endless.
This may sound like a scary answer, but I would say the same thing about the current fiat system in the US (which has only been around since the 1970s… which isn’t that long ago).
Here are a few reasonable ways that Bitcoin could fail or crash:
- a large group of miners (the people who protect the network) could get together and initiate a “51% attack.” This would be crazy expensive (roughly $355 billion in electricity + equipment) and is probably not feasible at the moment. This was a larger threat when Bitcoin was a smaller network, as it was easier to override. Now it is so big that a 51% attack is almost out of the question.
- China or the US could outright ban the use of crypto. They couldn’t break or destroy or sue or take over Bitcoin because nobody owns it, however, they could just make a law that shuts down BTC in their own country. This would suck and the price would probably dip like crazy. However, digital assets just got a high five from the OCC and China looks like it is going to be in the crypto space for the long haul.
- there is a huge bug in the system that has yet to rear its ugly head. At its core, Bitcoin is code, and if the code is flawed, then the system is flawed. So far, Bitcoin has proved sturdy, almost infallible, but there is always a chance that it fails.
- something better is invented that is more secure, faster, and easier to use. Bitcoin is the first, biggest, and most secure crypto out there, but it is a growing industry and I doubt there will not be a competitor at some point.
3. How often do people steal other’s bitcoin? *I know you made a digital wallet a few weeks ago or whatever*, but if that is what you are supposed to do, then how many people who own any Bitcoin actually make this wallet and what even is it?
So I do not have an exact answer to this question. An article from 2018 reported that $1.1 billion in Bitcoin was stolen over the course of the year. A Forbes article in 2019 puts the number around $4 billion a year. That is a lot of Bitcoin, I do admit.
Authors caveat: check out this website that says the total amount lost from internet scams in 2020 was around $150 838 567.
Whenever there is money involved, scammers and hackers will come. Just like you get the email from Princes in Arabia asking for monetary assistance, you will get DMs and emails asking for your private key and exchange related passwords. Be careful and you should be fine.
Check out this link if you want to know more about wallets.
When it comes to digital wallets, they are mostly safe and easy to use. A digital wallet is just an app that lets you store your Bitcoin, just like you have apps to store your money (banking app, Venmo, Robinhood, etc). Most people have digital wallets and don’t even know it, they just call them apps. There are about 1 million live bitcoin wallets right now.
The most secure way to hold Bitcoin is in a hardware wallet, but that is for more advanced holders (anything over 1% of your portfolio in my opinion).
I’ll put the reminder here for you to be sure to back up your private keys offline (never type them online or on your phone) and to use different passwords when setting up an account on your preferred exchange.
I can’t assure you that your Bitcoin will be safe, but neither can I assure you that your money is safe when you use a mobile banking app. It’s sort of the same thing.
4. Since Bitcoin is “used as a currency” yet people don’t use it as a currency right now because of how valuable it will be in the future, when do you expect bitcoin to be used like how money is used today? Or do you never think this will be the case?
I really don’t see Bitcoin being used like cash. I think it is digital gold: used as a store of value, hedge against inflation, and a way to move large amounts of money securely and quickly.
I honestly think “cryptocurrency” is a pretty useless word and can be misleading to people just entering the industry. I see Bitcoin as a digital asset. Bitcoin is a network of computers securing 21 million pieces of value.
How you use those digitally scarce pieces is up to you and only you. Labeling such a system as a “currency” is much to simple. It would be like calling the internet the intermail just because email was one of the first popular use cases for the internet.
Bitcoin could end up being a currency (just as gold is kind of a currency) but it is already so much more. It is a network, a system of trust, a new kind of technology, the first successful form of digital scarcity, and a reserve asset.
5. After reading this, I feel as though you primarily focused on the positive sides of BTC and that it would be pretty rare for you to lose your initial investment if someone were to invest in BTC. For a beginner, when reading what you wrote and then reading articles about ‘You should only invest money in BTC that you would be okay with losing’, I feel pulled in both directions. What do you have to say about that?
This is my favorite question because it gets at the core of the “should I buy bitcoin” issue.
Here I am talking about Bitcoin as this revolutionary invention. Digital Gold! Internet Money! Blockchain! 21 million!
And in the next sentence I am like “oh don’t invest too much or you will lose your ass.”
That is confusing. I am sure you want a straight answer.
Well, I am not going to give you a straight answer, because what you do with your money is on you and you alone.
If you are going to purchase some Bitcoin, start small. Just get a little bit of it and see if you like the experience. See if you can understand a digital wallet and seed phrases and all of that stuff.
Do your own research before you do anything more than purchase a few hundred bucks.
The moral of the story is that people have lost A LOT of money in this space due to scams, bad trades, ill-timed purchases, and the loss of private keys. There are horror stories. Just type into Google “stolen bitcoin” and you will want to throw up. It’s a dark and scary place sometimes.
I can’t guarantee the price will continue to rise. BTC could get hacked or banned or something even crazier than that. You could lose your private keys or have your identity stolen or something even worse. I don’t know the future.
But I do know this:
Bitcoin was up ~350% in 2020.
Bitcoin was the best performing asset of the last decade.
I am writing this article as Bitcoin sits at an all time high of $33,000.
Could a crash be imminent? Probably, based on the past volatility of BTC.
But could another pump be imminent? Ummm, yes.
Guggenheim’s CIO is calling for $400,000 BTC.
JP Morgan puts the number at $146,000.
Citibank thinks Bitcoin could hit $300,000 next year.
So go stack some sats. Just a few. Just for funsies.
KRAM 