The Characteristics and Causes of Cryptocurrency Volatility

When talking about the cryptocurrency market, traders and speculators of all levels will be aware of its volatility, which can reach 32% or more every day. The most important thing that is different about stock exchanges where crypto assets are traded is that prices can change so much.

But is there any point to this kind of instability? Why do these prices keep going up and down? Is it a good idea to invest in cryptocurrencies with high price volatility that also make money? We will look at these issues in depth and figure out the key thematic differences.

What Does Cryptocurrency Volatility Mean?

The basic meaning of the word “volatility” in the financial world is how much the price of an asset goes up and down. The idea behind this is, of course, important for the cryptocurrency market. On any type of price chart, it’s easy to see when quotes for virtual currencies go down or up. If you keep track of how far the price goes up and down over time, you can find the volatility indicator for any cryptocurrency.

The monthly volatility indicator is a good way to look at the cryptocurrency market. When making predictions and coming up with trading plans, you need to look at at least a quarter. There is also the historical volatility of a crypto asset. This shows how much the value of a digital coin has changed since it was officially added to the market for virtual currencies.

Crypto traders are also interested in how volatile the currency is likely to be. In fact, this parameter is a prediction of how the price of a certain digital coin will change in the future. Analysts figure out how to measure this based on:

• How much the crypto coin is worth at the moment;
• Its past changeability;
• General market sentiment;
• Liquidity, how much a project is worth, and how popular it is changing;
• Information about the money in question.

Any market asset’s volatility can be a bad thing or a good thing, depending on the investment strategy that is supposed to be used. When planning long-term investments, strong price changes will make the trader feel too much stress. There will start to be doubts, which can lead to making hasty, emotional decisions.

In short-term trading, on the other hand, volatility can lead to good profits if the trader is skilled, careful, and there are no outside factors that affect the trade. Here, it’s possible to make money if the prices go up or down. It is important to buy or sell a cryptocurrency asset at the right time.

Where the changes come from

Strong price changes, which are common on the cryptocurrency market, don’t just happen. Even small news stories and events that don’t seem important can change the price of digital money. Quotes for virtual currencies can be very volatile because of a number of direct factors.

• News about particular cryptocurrencies or the digital asset market as a whole.
• Cryptocurrencies are becoming decentralized. In other words, the government does not control or back digital money.
• Selling and buying cryptocurrency on exchanges. Traders with huge amounts of money sometimes move the prices of virtual currencies on purpose to make money off of the reactions of most small traders, middle peasants, and ordinary coin holders.
• Cryptocurrencies don’t have real safety. Digital money doesn’t exist in the real world, and its value is based only on how people feel about it.
• Having no real worth. Cryptocurrency doesn’t have any real-world properties that can be used to prove its value.

Conclusion

Exchange-traded assets have a specific trait called price volatility, which is most common in cryptocurrencies today. This process is affected by many objective factors. Human psychology, the decentralization of virtual currencies, the lack of value provision, and the knee-jerk reaction to any thematic event all play a big part.

The fact that digital coins are volatile is both a benefit and a drawback. The benefits of big and fast price changes depend on what the investor or crypto trader wants to do with their virtual money. If you are new to trading and want to make a steady profit on the cryptocurrency exchange, you should avoid volatile assets at first. With time and practice, you will learn how to use price volatility to increase your equity capital in a smart way.