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1. Why the Price of Bitcoin and
Ethereum Is (Still) Volatile
Bitcoin and Ethereum are seen by many not only as a future-friendly and
convenient form of payment, but as a wise long-term investment. The number
of people who use digital currencies is steadily increasing, and excitement has
grown around the possibility that the price of Bitcoin and other virtual monies
will soar in coming years. Indeed, the conditions are in place to make Bitcoin
poised to play an impactful role in the global economy: mobile device
adoption, which facilitates virtual currency transfer, continues to rise across
the world. In regions where many people have access to a smartphone but not
to banking services, the ability to store and send money with a phone is
extremely powerful. A great example of this is the digital finance platform M-
Pesa, which was pioneered in Kenya and Tanzania and has helped grow the
Bitcoin market in Africa and the Middle East.
Globalization has led many to take an interest in financial services that are
agnostic to national borders, including digital currencies. Bitcoin and
Ethereum allow for more seamless, time and cost-efficient international
money transfer. They are also perceived by some as a trustworthy alternative
to localized currencies in regions with political conflict.

2. On a more general note, as older business and finance processes continue to
digitize, a currency that is native to the digital world simply makes sense. The
trends that are making virtual currency more popular appear not only to have
lasting power, but to be a central aspect of future communications and
finance. By this logic, it makes a lot of sense to buy, sell, and invest in the e-
currency ecosystem.
But this is not without downsides. A continuing issue is that the price of
Bitcoin, Ethereum and similar tokens has always been subject to a much wider
range of price fluctuation, or volatility, than traditional currencies. This has
stayed true as the concept seems more and more normal. Wide price
fluctuation gives both investors and everyday digital cash user’s reasons to be
skeptical about this innovation, even in the face of staggering potential
payoffs.
There’s no way to definitively measure the chilling impact of volatility on
digital currency adoption. But it is possible to help this situation even out in
the long term. One way to encourage the stability of Bitcoin, etc., is simply by
learning about why they’ve been so unsteady. Understanding this can lead
individuals to make more informed choices about how they buy and spend
digital cash, which is better for everyone.
The first issue to address is public perception. Image is of utmost concern in
all forms of risk-based financial decisions, and is perhaps the biggest single
reason for the instability of digital currency. When large numbers of investors
act on negative press or industry skepticism about their holdings, this takes a
toll on their value. Regardless of the extent to which this mistrust is based in
reality, a poor or rapidly changing image can decrease or destabilize asset
prices significantly. This can in turn lead to a vicious downward spiral — a
selling panic. Thus, perception and image management is a critical component
to supporting new ventures, even if the “real” risk or functionality of an asset
like BTC is not nearly so ambiguous.
Because digital currency is not only a very new concept, but one that requires
a bit of technical knowledge to grasp, there’s a lot of anxiety about bad
decision making in this field. Many savvy financiers who own and use Bitcoin
remain unsure of how it gets its intrinsic value, among other features that
make Bitcoin work. For example, BTC consumers don’t necessarily have to
know that the design of its protocol has limited coin production to a fixed
number — that would be 21 million — or that cryptocurrency mining
technically builds a stronger and more trustworthy network. Regulatory and
growth-encouraging economic functions are still widely understood to be the
prerogative not of technology, but humans who work in governance and

3. policy. The irony is that blockchain technology, which powers Bitcoin and
Ethereum, is often touted as “trustless” because it is so resistant to human
tamper. The automation that helps make it more secure also makes many
people uneasy.
The mystery that surrounds digital currency means that bad press has an even
stronger capacity to hurt its price than it does on other investments. On the
other hand, the novelty and intrigue of the technology often means positive
hype can lead to more quickly rising prices. Bold investors eager to dip their
toe into an exciting new trend have plenty to be interested in here. Any
perception shift that could cause the value of more well-established assets to
rise or fall will likely manifest as an even larger swing in the price of BTC,
Ethereum, and so on.
As electronic currency becomes more widely accepted, this may change. But
perception is not the only reason digital currency is volatile.As noted, one of
the most attractive features of virtual currency is its inherent suitability to the
global market. Digital nativity means that international transactions cost
much less in terms of overhead. Indeed, virtual currency has helped us
envision a world where sending and receiving money is as easy as sending and
receiving email. But as businesses and individuals all over the planet begin to
embrace this as an option, national governments have had to grapple
separately with a wide range of issues regarding its regulation and role in their
respective economies.
Just as with perception and hype, the ways that governments acknowledge
digital currency can urge its price in either direction. On one hand,
legitimation via government recognition is positive news for the digital
currency community. It means that institutional actors understand that this
trend is here to last, and are working on policies aimed at gaining the most
social benefit from digital money. This offers reassurance to those with
traditional views toward financial systems, and could make for a smoother
transition to an economy in which digital currencies play a more prominent
role in international trade.

4. On the other hand, those who see virtual currency as a harbinger of a future in
which nation-states have less agency could be turned away by the government
interest here. This perspective spans a number of political ideologies, and is
certainly not a straightforward issue. For all of the different political opinions
on this, however, there are also technical reasons that the presence of
government mediation might give investors pause. A major benefit of the
technology behind these coins is that it allows for peer-to-peer transfer,
allowing for the disintermediation of flows of value and information that are
typically dependent on third-party administration. There is real concern about
the possibility that policymakers will disturb the decentralized, peer-to-peer
capacity of blockchain finance. So when governments discuss oversight and
regulation of Bitcoin, it does not always build user confidence. This
corresponds with the issue of image and perception, but also bears on the
technical specifics that make the concept of electronic money possible in the
first place.
It’s unclear whether Bitcoin and Ether will become as stable as traditional
currencies or assets like gold and silver, but an informed populous can
certainly help.