The price of Bitcoin is in somewhat of a downturn at the moment with the price dropping 20 percent last month.
This is common when it comes to cryptocurrency as the market is incredibly volatile.
Despite this volatility, folks still see the value in the sector explains Luno’s general manager for Africa, Marius Reitz.
“Bitcoin and other cryptocurrencies have great potential to be effective tools for storing, maintaining and exchanging value – this hasn’t changed. In fact, people in South Africa are buying cryptocurrency for the first time every day despite the drop in prices,” says Reitz.
While we do expect a degree of volatility when it comes to Bitcoin, we are always curious about why the price shifts so dramatically. Thankfully Reitz has some thoughts on why the price dropped so drastically in September.
One reason for the price drop is wide-reaching negativity across various assets.
“The main reason for the drop in Bitcoin’s price has been the negative sentiment across all markets caused by the global geopolitical news flow. This has impacted all asset classes and has happened at a time of low liquidity which has led to volatility. When there is more liquidity and markets become more risk-averse, there is still money going into safe-haven assets like gold and yen,” says Reitz.
Another contributing factor is the fact that short-term traders still dominate the Bitcoin market. As a result of this price action is driven by short-term analysis.
Luno also points to the launch of the Bitcoin futures trading platform Bakkt as another reason for the lower price.
“Bakkt, a long-awaited platform for trading Bitcoin futures, opened on 22nd September amid hopes the exchange would attract more buyers to cryptocurrencies, with some anticipating an institution-led bull run. Bakkt volumes have been lower than anticipated and the sharp decline in crypto prices has been linked to this disappointing start,” explains Reitz.
Finally, Bitcoin is volatile. The currency is a new asset and new assets have traditionally traded with higher volatility. That having been said, Luno says that as regulation is introduce and the functionality of cryptocurrencies improves, that volatility will subside.
Hopefully this gives you a better idea of why the price of Bitcoin dropped so drastically.[Image – CC 0 Pixabay]