The Bitcoin market is a very young developing market that is growing rapidly. Despite the raid growth, has a long way to go before it becomes a mature, stable, widely accepted currency in the global marketplace. It is, however, headed in that direction, in spite of periodic crashes in the price of Bitcoin due to wholesale dumping of large quantities of Bitcoins on the market in a very short period of time.
Some people have theorized that the entrenched central banks are behind the large scale dumping of Bitcoins, in order to deliberately create a crash to scare the public away from a competing currency. The flood of stories in the mainstream financial press demonizing Bitcoin, at the same time the price crashed is offered as additional evidence of a coordinated attack on the entire Bitcoin market. That’s certainly plausible.
The Bitcoin market is a pure market. There’s not yet any trading in any derivatives, futures, or other proxies representing Bitcoins that could add additional pricing factors into the market. Prices are determined by actual sales of Bitcoins between actual buyers and sellers. There are no future promises to deliver Bitcoins, currently being traded that could have the effect of artificially expanding the supply of Bitcoins.
The Bitcoin market is Very Basic
If more sellers of Bitcoins emerge than there are buyers at the current price, the Bitcoin price will fall. Conversely, if buyers of Bitcoin emerge trying to buy more Bitcoins at the current price, then there are available, the price will get bid up. Every time there is a Bitcoin sale, an actual Bitcoin is transferred from one Bitcoin wallet to another.
Therefore, the value of Bitcoin can fluctuate rather dramatically, depending purely on swings in the supply and demand. Additionally, unlike the stock market, there are no market makers take the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders.
As such, the Bitcoin market, being young, not fully developed. And void of any market makers to smooth out the buy and sell imbalances, is expected to experience large price swings based upon changes in supply and demand. This is to be expected. The important factor to focus on is the level of acceptance of Bitcoin into the global currency marketplace. The more Bitcoin gains market participants and acceptance as a form of payment, the greater its value will become.
