Since its launch, the cryptocurrency market has seen an upward trend, especially in the last few years. What started as a concept has now become a reality for traders around the world.
In fact, many have even left conventional trading in fiat currency or forex and switched to the cryptocurrency market. Naturally, with so many perks, this virtual trading method will witness such a surge.
As we all know, Bitcoin is a fully decentralised peer-to-peer payment system known for its volatility. Cryptocurrency volatility does not occur in isolation. In fact, it affects the direction of the cryptocurrency market. The changing price of Bitcoin affects most cryptocurrencies.
However, before you start investing in a cryptocurrency, you should always consider that the world is "volatile" with it. Understanding the factors affecting bitcoin volatility will allow you to better predict events and trends in the cryptocurrency market. Read on to better understand cryptocurrency volatility.
What is a volatile currency?
When we talk about any particular currency, its valuation never stays the same. These are fiat currencies, so their value doesn't change too often. However, the currencies involved in the crypto market are very volatile.
This means that their valuation is constantly changing 24x7. And also the degree of change is quite dramatic, i.e. sometimes their price can be too high or too low. Thus, the volatility of a currency determines how many times its value will change and by how much that change will occur.
Why is there volatility in cryptocurrencies?
Volatility plays a significant role in every trading market, and to understand this, we must first define volatility. It is the amount of an asset's price that changes over time. In a 24-hour trade, it is defined as the spread of an asset's price from its initial price. Volatile investments are those whose value fluctuates sharply up or down on a daily basis, as seen in the cryptocurrency market.
Below you will be introduced to some points that will help you better understand why cryptocurrencies are so volatile.
1. Decentralisation
The cryptocurrency market is decentralised, which means there is no governing or regulatory body supporting the transactions. No government or entity interferes with trading, market capitalization, valuation and other activities. As a result, everything is managed by the traders themselves. This is what makes the currency so volatile, as there is no legally agreed valuation. Prices go up and down without any protocol being followed.
2. Risks of loss
Since there is an agreed valuation of cryptocurrencies, there are no predictions that a trader can rely on. Thus, one bad call and you can lose all your shares without any backup plan. This is why the market is considered extremely volatile. The degree of valuation change here is completely unexpected and uncertain. Even data collectors and analysts don't know about exact price changes.
3. limited supply increases demand
One of the key causes of currency volatility is the supply and demand market. Cryptocurrency is a digital currency that has no physical form. Therefore, data miners assess the trading market, checking whether there is a shortage of any currency or not. On the other hand, if you find a shortage, the price goes up accordingly. The opposite happens when more currency is released into the market as free assets and the price goes down.
Is it worth investing in cryptocurrency?
Despite this volatility, many traders want to know if cryptocurrency is a platform worth investing in or not. Well, crypto actually has both advantages and disadvantages. One has to be cautious and informed at all times. However, since there are so many trading platforms such as exness download for pc , you can learn about trading and then invest in any of these platforms.
Final thoughts
It remains to be seen whether the volatility of cryptocurrencies will eventually replicate the volatility patterns seen in traditional assets. However, experts believe that cryptocurrency will continue to be volatile in the future.
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Stefan Demirian
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