Yes, Bitcoin is very volatile, so tread (trade) carefully

No doubt, Bitcoin is very volatile. It is so for a few reasons, the most obvious being at least two that I can think of right now. 

1) It is a new trading instrument. As they age, they become less volatile - this has to do with their greater acceptability, provided that such takes place. If it does not, they may simply disappear from the public view.  This, in turn, not only leads to increases in their trading volumes, but - perhaps even more importantly - it boosts the public confidence in them. This lack of confidence, quite justified at this point, is what has been plaguing all cryptocurrencies ever since their inception . After all, unlike most trading instruments that the broad public participates in, they are not regulated. Scams around Bitcoin and other cryptos are, sadly, not uncommon, and they can involve hefty sums of the order of millions of dollars. 

2) Trading whales manipulating the price. And we are not talking about your typical investment whales whose names are not widely known, but, in the case of Bitcoin, about someone of the Elon Musk caliber. Now, the man's name is what you call the household name if there ever was such a thing. We don't know all of them, but it's pretty obvious that at this point, Bitcoin is big boys' game, a game of people with deep pockets that can invest millions of bucks and would still be able to sleep well even if all this money evaporated in an instant - but that's rather unlikely and they know it. Most of them are now sitting on a very tidy profit and hence are very interested in boosting the Bitcoin price. Of course, if the price rises too fast, they may also be interested in locking in profits, causing the price to drop, sometimes quite significantly. 

What these two things mean is that Bitcoin is not for ordinary mortals. It is certainly a very good trading vehicle for people with large financial resources. Everybody else, if they decide to participate in this game of trading, should be treading cautiously here. Don't commit too much money to it. Only what you can absolutely lose without affecting your lifestyle. Part of it can be used for trading, the other part for investing for a longer haul of years, 5-10, or even for longer, if things continue to look promising.

At this point, I believe, that they pretty much do. There is future in cryptos, even if most of them are unlikely to survive. Yet, some - Bitcoin, in particular - most likely will. 

One reason, I am convinced, Bitcoin is bound to be still around in 10 years is the people just mentioned: the deep pocketed individuals who are the masterminds of  the whole thing. They may be a bit of a  problem in that they have undue influence on the price, but their participation in the crypto game means that this thing is rather sure to last, and not for mere years only, but, most likely, for decades. Yes, it makes sense to talk about decades here, as Bitcoin is already older than a decade.  

But, then again, only time can tell if our prognostications are on the money. 

I wrote all of the above in the latter part of November. This past summer, I anticipated that Bitcoin would hit new highs, even by the end of 2021. That indeed happened and on November 7th, the price of Bitcoin closed quite a bit over 67K, USD that is. The highest so far. However, as I am finishing this article on December 7th, it is back to the lows of 50K's having at some point revisited low 40K's, even if very briefly.

That's what I mean by volatility. It is perfect if not slightly scary an illustration of it. Bitcoin does move in big swings, much bigger than most trading vehicles that have attracted some serious attention of market participants can muster. Its swings can be bigger than one third of the total price range since its inception within a month or less only. That's huge! 

Posted on December 7th, 2021.

Last updated on January 25th, 2022.