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Bitcoin Volatility Provides a Wild Ride for Investors

The cryptocurrency has seen great fluctuation lately, illustrating its inherent volatility.

Bitcoin (BTSC)  has been on a wild ride during the past week. 

The cryptocurrency started off on Friday afternoon priced at $53,670, but by late Friday night and Saturday morning, it fell 20%, all the way down to $42,000 at one point, The Wall Street Journal reported. 

But then bitcoin started rebounding at the start of the week, and was up to $50,528 on Tuesday afternoon, which is still down from its high of $68,990 in November.

Up And Down

The popularity of cryptocurrency has been on a modest if steady increase during the past two years, going from being largely a concern of the extremely online to something investors are more broadly dipping their toes in. 

About 26% of U.S. investors now have some form of crypto holdings, according to a survey of about 1,000 investors from Grayscale Investments, while Coinshares reported that investors have put $9 billion into crypto this year, up from $5.6 billion in 2020. 

The slow acceptance of bitcoin indicates that it is starting to become acceptable to more traditional investors, and not just meme stock enthusiasts and users of mobile investing apps such as Robinhood, long viewed as the natural audience for crypto.

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Risky Business

The appeal of bitcoin is that while it is a much more volatile investment, it has the potential for greater gains. As CNBC reports, there is a limited amount of crypto available and no central bank to regulate it, so wild swings are part of the whole deal. 

That’s why there are plenty of stories (some of which are almost certainly apocryphal) on Reddit of people becoming crypto millionaires overnight only to lose it all the next day. 

The price of bitcoin bottomed out in March 2020 as the pandemic began to set in, but as the Federal Reserve began cutting interest rates and pumping up the market, bitcoin began recovering along with the major indexes.

For a while, the risky nature of bitcoin was part of the appeal to a certain type of daredevil trader. For much of the recovery, bonds were much safer and stable for investors than other commodities, but also less profitable, so some investors decided to take their chances.

But last week Jerome Powell, chairman of the Federal Reserve, indicated that the Fed would begin to draw down their acquisition of assets (though apparently not fast enough for some) and would begin to raise interest rates. All of a sudden, some investors saw less need for high-risk, potentially high-reward investments like bitcoin. 

With some investors seeing less of a future in bitcoin, about $2.5 billion shares were sold on Friday night, as bitcoin exchanges never close. But the rebound shows that the price of crypto will increasingly stay hard to predict.

At last check, the price of bitcoin was up 0.08%.