Steemit Post Value Changes—5 Reasons Why Cryptos are More Volatile Than Dollars
Yesterday @whatageek wrote an excellent post on why the value of Steemit posts changes all the time. https://steemit.com/steemit/@whatageek/why-your-steemit-post-value-changes-even-when-your-vote-doesn-t. In this post we discuss five reasons why the value of cryptocurrencies such as Steem is more volatile than the value of fiat money such as US Dollars and EUROs.
#1. Bad press. Last year, a press report that central banks plan to regulate cryptocurrency resulted in the value of Bitcoin to plummet overnight. Another example of adverse reporting occurred in 2014. A news report indicated that Bitcoin was being used to fund drugs on Silk Road. It prompted the FBI to investigate. Such negative stories cause volatility in the cryptocurrency market.
#2. Perceived value. The value of money is based on the trust people have in it backer. A US$100 bill (printed paper) is worth next to nothing. People accept it because it is backed up by the US government as legal tender. Cryptocurrencies are not legal tender in many countries, which contributes to their volatility.
#3. As a store of value. The use cryptocurrency as a store of value is a new concept for many investors. An asset is considered to be a good store of value if the investor can sell it at a profit in the future. The volatility of cryptocurrency makes it difficult for some investors to hold it for the long haul. Many investors only hold cryptocurrency for the short to medium term, which contributes to the volatility.
#4. Government intervention. The value of cryptocurrencies is not regulated. In contrast, governments and central banks control the amount of fiat money in circulation and its exchange rate, depending on the desired level of inflation, economic growth, and employment targets.
#5. Tax treatment. When the IRS announced that it would treat cryptocurrency as an asset for tax purposes, it appears to have sent a message that the government was considering stricter regulation at a later date. Tax changes affect the value of cryptocurrency.
#6. Security breaches. There has been news of security breaches, which make investors nervous. Efforts by developers to develop more secure blockchain platforms and fix the software loopholes are ongoing. An example of a security breach is the Heartbleed bug attack, reported by Google in April 2014 which was reportedly the reason for the 10% fall in Bitcoin’s value in subsequent months.
Nevertheless, the technology, value concepts, tax issues, and security concerns surrounding cryptocurrency are still evolving, and we expect more improvements and refinements. Cryptocurrency has many advantages over fiat money and attracts new believers every year. Today is the best time to enter the cryptocurrency game. For better days are still ahead.