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Bitcoin’s Price Volatility

By: Ray Wu

To many, bitcoin represents an abstract unit of currency. Part of what makes bitcoin and digital currencies unique is their price volatility. The cause of bitcoin’s price changes can be boiled down to basic supply and demand. Bitcoin’s price piqued in November 2021 when value of a single bitcoin surged to over $65,000 . The price later plummeted to about $15,000 per bitcoin.

Now, Bitcoin are worth less than half of their value in November 2022. The drop in price has caused many bitcoin miners to delay their job because they are not getting enough profit from mining new bitcoins. However, there is a second part of their jobs. They also validate transactions, so scams are avoided. The drop in price also means less bitcoin transactions are verified.

When Bitcoin was first created in 2009, prices were extremely low. No companies were investing in digital assets, and there was no idea of how blockchain technology, or cryptocurrency, could influence operations and infrastructure. Since prices were so low, some individuals started investing in it, but others laughed at it like a joke. It took years for bitcoin prices to start to inflate rapidly, which showed that more people were buying it. In 2016, cryptocurrency started to embed into the structure of the economy, casting a much larger net.

If you look at the past year of a bitcoin price chart, it appears promising that bitcoin will be able to maintain its current price. There are still spikes and drops -- it’s nearly impossible for bitcoins to be sold and bought at the same rate. Every two months or so, the price will dramatically change over a course of a couple days or weeks. That’s why the price chart looks like a rough staircase. This also gives bitcoin miners some kind of clue as to where the price might head.

During 2023, the bitcoin price has taken three $5,000 steps up. This adds about $15,000 from the start of the year, effectively doubling the price. This price increase is enough to incentivize bitcoin miners to continue mining.

The five-year price chart, however, looks like a mountain range. Bitcoin prices were steady until the summer of 2020. Ever since, prices have been climbing up and down mountains, indicating that bitcoin prices have been most unpredictable for the past 3 years.

Bitcoin prices have had a very volatile journey—prices have walked in plains, hiked in forests, climbed mountains, and even swam up waterfalls. Prices seem to be recovering from their depressed state following the November 2021 peak, so many predict more economies and companies will invest in cryptocurrencies like bitcoin.

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