Volatility is the changeability of price. A sharp drop or rise in the price usually leads to an increase in volatility. And when the price fluctuates around a certain mark for a long time, volatility decreases.
The cryptocurrency market is characterized by increased volatility. Price dynamics can vary up to several tens of percent. For classical financial instruments, such changes are enormous, while for the crypto market this is a common phenomenon.
Why is volatility increasing
Usually, volatility increases when some important event occurs that affects the market as a whole or a specific instrument. For example, Elon Musk's tweet raised the price of a joke token by almost 30%.
Reasons for Cryptocurrency Volatility
All the concerns of the participants of the crypto market are that they do not know what to expect from it. That is why the quotes of these assets are very volatile.
Cryptocurrency Volatility Factors
- The absence of state regulation, the currency of its country receives support and stimulation from the state to one degree or another. As for cryptocurrencies, they are decentralized and are not fully regulated by the financial authorities of states. They are interested in stabilizing the exchange rate of the national currency, while the cryptocurrency rate fluctuates depending on supply and demand.
- There is no binding to tangible value, the dependence of the exchange rate on such factors as, for example, the demand for oil, gold and other resources is implied. After all, this is a certain value, and as long as it is stable, the exchange rate will be relatively stable. Cryptocurrencies do not have such values.
- Cryptocurrencies have no real value, for example, the value of a stock is estimated by the market value of the entire company (income, price of goods, etc.) divided by the number of such shares. There are no ways to estimate the real value of cryptocurrencies.
- The human factor. Cryptocurrencies have caused a stir in recent years, which provoked an influx of novice investors and traders to the market. Newcomers in this field often make mistakes, buying and selling assets at the most inopportune moments, and thereby affect the fluctuations of the exchange rate.
Theses of volatility
- Volatility is the changeability of price.
- High volatility is a rapid and strong price change.
- The higher the volatility, the better for active speculators (traders). But the risks are also higher.
- Cryptocurrencies are highly volatile instruments. The volatility index shows market expectations about price changes in the future.