Recently, someone asked me why Bitcoin is so volatile. I happened to organize some thoughts and want to share them with everyone.

When it comes to the reasons for cryptocurrency price fluctuations, the first thing to understand is the change on the supply side. Bitcoin has a total supply of only 21 million coins, and over 20 million are already in circulation. Last year, the daily supply was 900 coins, but starting from April 2024, it was halved to 450 coins, directly affecting the new supply. When supply is limited but demand increases, prices naturally tend to go up.

Another key change is the entry of institutional funds. Since early last year, several Bitcoin spot ETFs have appeared in the market, making it easier for both retail and institutional investors to participate, significantly increasing liquidity. With backing from major institutions, market confidence has also risen, which is an important factor in the price movements of cryptocurrencies.

Currently, Bitcoin is trading around $66,900, but its all-time high was actually $126,000. This kind of volatility reflects a combination of market sentiment and multiple factors. Government policies, regulatory attitudes, macroeconomic environment, market enthusiasm—these all influence the price trend. When the economy is unstable, some people view Bitcoin as a safe-haven asset; when the market is optimistic, FOMO (Fear of Missing Out) can also push prices higher.

Mining dynamics cannot be ignored either. The recovery or decline of hash rate can impact short-term prices. Additionally, large investors’ buying and selling behaviors, technological development progress, security issues, and other factors interact with each other, jointly determining the complexity of cryptocurrency price fluctuations.

To put it simply, Bitcoin has no fixed pattern of rise and fall. It’s like a result of multi-factor game, with supply, demand, sentiment, policies, and macro environment all influencing it. As investors, it’s important to closely monitor these variables rather than blindly follow trends. After all, cryptocurrency volatility is indeed high, and the risks are significant. Make sure to fully understand your risk tolerance before entering the market.