Bitcoin has experienced extreme up and downswings over the past week - even more volatile than the usual dramatic norms of the cryptocurrency market.

Imagine you are selling your home. Another home down the street, very similar to yours, is asking $20 000 above your asking price. This is great for you. It means you can probably get a little more for your home.

Another house just like yours comes on the market for $30 000 less. Uh-oh. Your asking price isn't looking so great now.

This is a relatively illiquid, or low-liquidity market. Three homes. Not a lot of choices. One difference in price has a lot of influence on your asking price.

This is the problem with Bitcoin right now. Many Bitcoin owners are long-term hodlers, using Bitcoin as a store of value, not as a currency for daily transactions. When a relatively small quantity of Bitcoin out of the whole market gets shifted around, but most remains locked up in long-term savings, the price fluctuates dramatically.

More and more new Bitcoin buyers are entering the market and just sitting on their investment. It may take quite some time for Bitcoin to become more liquid.

When Bitcoin successfully addresses transaction issues through improvements such as SegWit and the Lightning network, we may see greater liquidity. In the meantime, expect volatility to become more severe. Try to take advantage of dips by dollar-cost averaging your purchases instead of trying to time buying in large lump sums.

Source:

https://www.cagreatamerica.com