The main question on people’s mind is what is volatility in cryptocurrency, but what is it actually? Bitcoin is a popular example of this. During the COVID pandemic, prices of cryptocurrencies jumped 20%. Bitcoin’s price peaked at 200% in April of 2020. In a year, Bitcoin volatility averaged 68%, compared to S&P 500’s low to mid-teens.
Volatility is a result of two factors. One is the lack of historical data, while the other is the reaction of the market to innovations in the industry. Many companies and individuals around the world are creating new cryptos and apps, and the rate at which these are adopted changes drastically. In addition, high and low volatility can be related to various factors, such as the amount of news coverage the cryptocurrency has received. Therefore, it is important to understand how these factors can affect the price of a crypto.
Despite the volatility in cryptocurrencies, the industry itself is relatively new, with most projects being only a few years old. This means that different coins will serve different purposes. Often, these coins will act as startup equity, providing liquidity and price discovery from the start. Because of the novelty of the crypto infrastructure, the price volatility is likely to be benign. The market is also fueled by day traders and speculators, so there are few established institutions to influence the price.
Despite the high volatility of cryptocurrencies, Bitcoin is an excellent investment opportunity. With the low level of regulation, it is difficult to predict whether an investment is a good one. A few key factors contribute to the high level of volatility. One of them is the market size. While the size of a cryptocurrency can make it a risky investment, a proper strategy can help you to avoid the worst effects. The first step to success in cryptocurrency is understanding its volatility.
