This year, we can notice that cryptocurrencies tend to move up and down by as much as 15% in value on a daily basis. Such price changes are known as volatility. But what if… it’s completely normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to earn good money?
First of all, cryptocurrencies have recently hit the mainstream, so all the news and rumors about them are “hot”. After every statement by government officials about the possible regulation or ban of the cryptocurrency market, we observe huge price movements.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold was in the past) – many investors consider them a backup investment option to stocks, physical assets like gold, and fiat (traditional) currencies. Transfer speed also affects cryptocurrency volatility. With the fastest ones, the transfer takes even just a few seconds (up to a minute), which makes them an excellent tool for short-term trading, if there is currently no good trend on other types of assets.
What everyone should keep in mind – this speed also applies to cryptocurrency lifetime trends. While in normal markets trends can last for months or even years – here they take place within a few days or hours.
This leads us to the next point – although we are talking about a market worth hundreds of billions of US dollars, it is still a very small amount compared to the daily trading volume compared to the traditional currency market or stocks. Therefore, one investor making 100 million transactions on the stock exchange will not cause a huge price change, but at the level of the cryptocurrency market, this is a significant and noticeable transaction.
Because cryptocurrencies are digital assets, they are subject to technical and software updates to cryptocurrency features or expansion of collaboration on the blockchain, making it more attractive to potential investors (like the activation of SegWit basically caused Bitcoin to double in value).
The combination of these elements are the reasons why we observe such large changes in cryptocurrency prices within hours, days, weeks, etc.
But the answer to 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 weaker ones that last for weeks or months like in stocks) gives a much better chance of making a decent profit if use correctly.