Bitcoin Price Fluctuations: Why It Happens and What to Do
“Volatility? Mate, That’s Just Bitcoin Doing Its Thing”
So, you’ve finally bought some Bitcoin. Congratulations.
You’re now the proud owner of digital gold and possibly a one-way ticket on the world’s bumpiest rollercoaster.
Because let’s be real, Bitcoin doesn’t move in straight lines.
One day it’s up 20%, and you’re planning your early retirement in Byron Bay.
The next day it’s down 15%, and you’re questioning every life decision you’ve ever made.
But before you jump ship, know this: volatility is part of the game.
Bitcoin’s price moves for a reason, and if you understand those reasons, you’ll be less stressed and more prepared.
This guide will explain what’s happening, why it’s happening, and how to keep your head while everyone else is losing theirs.
Bitcoin Price Fluctuations: Why It Happens and What to Do
Let’s be honest: watching Bitcoin’s price is a bit like watching your favourite team in the finals.
One minute you’re cheering, convinced you’re up.
The next, it’s plummeting and you’re holding your head, muttering about bad luck and referees. Welcome to the rollercoaster that is Bitcoin.
If you’re new to the crypto world, it’s easy to think Bitcoin’s volatility means something’s gone horribly wrong.
Spoiler: it hasn’t.
Volatility is the name of the game, and if you understand why it happens, you can ride the wave like a pro instead of freaking out every time the price dips.
I’ll explain what causes Bitcoin’s wild price swings, share real-life examples, and give you practical tips to handle it.
Whether you’re a crypto beginner or just someone who wants to know what the fuss is about, I’ve got you covered. Let’s dive in.
Why Does Bitcoin’s Price Fluctuate So Much?
Bitcoin isn’t like traditional assets.
It doesn’t sit quietly like a savings account earning a couple of bucks in interest every year. It’s new, exciting, and moves fast. Here’s why:
1. Supply and Demand
At its core, Bitcoin’s price is driven by simple economics – supply and demand.
There will only ever be 21 million Bitcoins, and that fixed supply means as demand grows, so does the price.
But when demand drops, well, you get the picture.
Example: Imagine there’s a mad rush on toilet paper (sound familiar?). Everyone wants it, shelves are empty, and suddenly a roll costs more than your morning coffee. Bitcoin works the same way – when everyone wants in, prices go up. When people sell off, prices come back down.
2. Market Sentiment
Bitcoin is highly influenced by news, trends, and good old-fashioned FOMO (fear of missing out).
If Elon Musk tweets something nice about Bitcoin, prices might shoot up faster than you can say “Tesla.” But if a country bans it or there’s negative press, panic can set in, and prices can plummet.
Example: In 2021, Bitcoin hit a new high when big institutions like Tesla started investing. But when China cracked down on crypto mining, prices fell almost overnight. Why? The market panicked.
Lesson: News and sentiment play a massive role in Bitcoin’s short-term movements. If you’re glued to headlines, you’ll feel like you’re riding a financial yo-yo.
3. It’s Still a Young Market
Compared to traditional currencies or gold, Bitcoin is still a toddler in financial years.
This means it doesn’t have the stability or maturity of established assets. It also means smaller trades can have a big impact.
Example: If someone sells $100 million worth of Bitcoin, it can send ripples through the market, unlike, say, selling $100 million in shares of a major bank like CBA.
Examples: Bitcoin Volatility in Action
Let’s look at a few real-world scenarios to show why Bitcoin’s price moves the way it does.
1. The 2020 Boom (And Why People Got Excited)
In March 2020, Bitcoin was sitting at around $6,000. The pandemic had people worried, and investors flocked to Bitcoin as a hedge against traditional markets. By December 2020, Bitcoin hit $30,000.
What Happened?
- Investors started seeing Bitcoin as “digital gold”.
- Stimulus packages meant more cash in people’s hands, and some of that cash flowed into crypto.
The Value: Bitcoin offered an alternative investment to people fed up with low-interest savings accounts.
2. The Elon Musk Effect
In early 2021, Elon Musk announced that Tesla would accept Bitcoin as payment.
The price soared to over $60,000. Then, a few months later, Musk backflipped, citing environmental concerns. Cue the price falling faster than your footy team in the second half.
The Takeaway: Individual news events can send Bitcoin’s price soaring or tumbling. The more you understand these factors, the less likely you are to panic when the next big headline hits.
3. China and the Crackdown
China’s crackdown on crypto mining in 2021 caused a massive sell-off. Why? China accounted for the majority of Bitcoin mining. When it pulled the plug, uncertainty rattled the market.
Lesson for You: Big events in key markets (like China, the U.S., or Europe) can drive prices down. But as we’ve seen, Bitcoin has a way of bouncing back.
4. The Bitcoin ETF Announcement
In 2023, the approval of Bitcoin ETFs (Exchange Traded Funds) in major markets caused waves of excitement. Why? ETFs allow institutional and retail investors to buy Bitcoin more easily without dealing with the technical side of crypto.
What Happened?
- Demand surged as new money poured into Bitcoin from institutional investors.
- Prices rallied as people saw ETFs as a sign that Bitcoin was becoming more mainstream.
The Value: For everyday investors, Bitcoin ETFs opened the door to safer, more accessible Bitcoin exposure without needing a wallet or an exchange.
Side note* I'm invested in IBIT: Blackrock’s Bitcoin ETF – ishares Bitcoin Trust (Australia/US) this is listed on the NASDAQ (IBIT) and I’m invested in this ETF, along with holding a small amount of bitcoin via the exchange Coinspot (been on here since 2017) and majority of my bitcoin via cold storage wallet – Tangem wallet (use my link an get 10% OFF automatically).
5. The Pro-Bitcoin Donald Trump Effect
In 2024, Donald Trump made headlines again, this time for being vocal about supporting Bitcoin and decentralised finance.
His comments sparked interest in Bitcoin as an alternative to traditional systems.
What Happened?
- Pro-Bitcoin rhetoric boosted market confidence.
- More investors saw Bitcoin as a legitimate asset class, leading to price spikes.
The Takeaway: Political endorsements can drive waves of optimism in the crypto market, especially when high-profile figures like Trump get involved.
How to Navigate Bitcoin’s Price Swings Like a Pro
If you’re new to Bitcoin, the price volatility can feel overwhelming. But here’s how you can stay calm and keep your cool.
1. Zoom Out
Stop checking the price every five minutes. Bitcoin’s short-term movements are wild, but the long-term trend has been upward.
Pro Tip: Look at Bitcoin’s price history over 5-10 years instead of focusing on daily swings. Volatility is normal.
2. Invest What You Can Afford to Lose
Here’s a golden rule for any investment: never put in more than you can afford to lose. Start small, learn the ropes, and build your confidence.
Example: Emma, a teacher, started with $100 a month. Over time, her consistent approach helped her grow her Bitcoin holdings without stressing about price swings.
3. Think Long-Term
If you believe in Bitcoin’s potential, treat it like a long-term investment. Don’t panic-sell when prices drop. Volatility is part of the ride.
Pro Tip: Set and forget. Use dollar-cost averaging (DCA) to buy small amounts regularly instead of trying to time the market.
Why Volatility Isn’t the Enemy
Bitcoin’s price swings might look scary at first, but they’re also what makes Bitcoin exciting.
As demand grows and the market matures, these swings will likely smooth out. Until then, it’s about understanding the “why” behind the movement and staying smart.
For beginners, Bitcoin can feel like a wild ride, but if you keep a long-term view, stay informed, and invest wisely, it could be one of the best moves you’ll make.
So, the next time Bitcoin drops 10%, don’t panic. Take a deep breath, remind yourself that it’s part of the game, and maybe go grab a flat white. You’ve got this.
Resource Recap - Bitcoin for Beginners
· Read blogs, watch YouTube videos, or even grab a book like The Bitcoin Standard. Educating yourself helps you make better decisions and not fall for scams.
· Cold Wallets: Offline wallets (like USB drives or cards) that keep your Bitcoin safe from hackers, such as the one I use – Tangem.
· In terms of exchanges, some good options for beginners include Binance, Coinbase, or CoinSpot (a local Aussie favourite – this is also the one I use and have been using since 2017).
· IBIT: Blackrock’s Bitcoin ETF – ishares Bitcoin Trust (Australia/US) this is listed on the NASDAQ (IBIT) and I’m invested in this ETF, along with holding a small amount of bitcoin via the exchange Coinspot (been on here since 2017) and majority of my bitcoin via cold storage wallet – Tangem wallet (use my link an get 10% OFF automatically).
Here are some straightforward metrics that beginners can use to assess Bitcoin (see below).
CoinMarketCap illustrates many of the below metrics on one page - https://coinmarketcap.com/currencies/bitcoin/
- Price: The current market value of Bitcoin, indicating how much one Bitcoin is worth in fiat currency (e.g., USD).
- Market Capitalisation: Calculated by multiplying the current price by the total number of Bitcoins in circulation, this metric reflects the total market value of Bitcoin.
- Trading Volume: The total amount of Bitcoin traded within a specific period, showing the level of market activity and liquidity.
- Hashrate: Measures the total computational power used to mine and process transactions on the Bitcoin network. A higher hashrate suggests a more secure and robust network.
- Mining Difficulty: Indicates how challenging it is to mine a new block. The network adjusts this periodically to ensure blocks are added at a consistent rate.
- Transaction Volume: The total number of transactions processed over a certain period, reflecting the network's usage and adoption.
- Number of Active Addresses: Represents the count of unique addresses participating in transactions, serving as a proxy for user activity.
- Fees per Transaction: The average fee users pay to have their transactions processed, which can indicate network congestion and demand.
- Mempool Size: The aggregate size of unconfirmed transactions waiting to be added to the blockchain. A larger mempool can signal higher network congestion.
- Supply Metrics: Includes the total supply of Bitcoin, the number of Bitcoins mined, and the remaining supply to be mined, highlighting Bitcoin's scarcity.
For beginners, focusing on these metrics can provide a foundational understanding of Bitcoin's market dynamics and network health.
Slug: bitcoin-price-fluctuations-what-to-do
Meta Description: Curious why Bitcoin’s price moves so much? Learn why Bitcoin fluctuates, what drives its volatility, and tips to handle it in this beginner-friendly guide.
This is Part VII of your Bitcoin for Beginners: The Quickest Way to Learn About Bitcoin series
Cheers,
Stevo – Armchair Banker MAppFin, AdvDipFP, ADA
‘Meet Stevo, the financial wizard behind Armchair Banker. With 15 years of experience in investment banking, corporate finance, and markets, Stevo’s résumé is so impressive it could intimidate a spreadsheet.’
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DISCLAIMER: The information in this article does not constitute personal financial advice. Consult your adviser or stockbroker prior to making any investment decision.
MORE DISCLAIMERS: Stevo is not a Financial Adviser, however, works as an Investment Banker assisting ASX listed companies with retail capital raises. All opinions expressed and written by Stevo, including all other ‘Armchair Banker’ contributors is for informational and entertainment purposes only and should not be treated as investment or financial advice of any kind. Any information provided from our articles, blogs and written opinions is general in nature and does not take into account your specific circumstances. Armchair Banker and its contributors are not liable to the reader or any other party, for the reader’s use of, or reliance on, any information received, directly or indirectly, from any content by Armchair Banker in any circumstances.
The reader should always (we’re serious about this):
1. Conduct their own research
2. Never invest more than they are willing to lose
3. Obtain independent legal, financial, taxation and/or other professional advice in respect of any decision made in connection with this video.
Full Disclosure: Stevo holds Bitcoin at the time of publishing. Using my provided links/affiliate links could result in a payment or fee discount for Stevo, helps keep the lights on mate.
