This year we can see cryptocurrencies move up and down by as much as 15% on a daily basis. Such price changes are known as volatility. But what if… this is completely normal and sudden changes are one of the characteristics of cryptocurrencies that allow for good profits?
First of all, cryptocurrencies have become popular very recently, so all the news and rumors about them are “hot”. After every announcement by government officials to regulate or ban the cryptocurrency market, we see huge price movements.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold used to be) – many investors see them as a backup investment option to physical assets such as stocks, gold and fiat (traditional) currencies. The transfer speed also affects the volatility of the cryptocurrency. With the fastest ones, the transfer even takes a few seconds (up to a minute), which makes them an excellent asset for short-term trading if there is currently no good trend for other asset types.
What everyone should keep in mind is that this speed is also consistent with the lifetime trends of cryptocurrencies. While trends in conventional markets can last for months or even years – here they happen in days or even hours.
This brings us to the next point – although we are talking about a market worth hundreds of billions of dollars, it is still a very small amount compared to the daily trading volume compared to the traditional currency market or stocks. Therefore, a single investor making 100 million transactions on the exchange will not cause a huge price change, but on the scale of the cryptocurrency market, it is a significant and noticeable transaction.
Since cryptocurrencies are digital assets, they are subject to technical and software updates of cryptocurrency features or expansion of blockchain cooperation that make it more attractive to potential investors (for example, the activation of SegWit causes Bitcoin’s value to double).
The combination of these elements affects the price of cryptocurrencies for several hours, days, weeks, etc. are the reasons why we observe such large price changes during
But to answer the question from the first paragraph – one of the classic rules of trading is to buy low, sell high – so having short but strong trends every day (rather than weak trends that last for weeks or months like in stocks) gives you more chances. earning a decent income if used correctly.