This year we can notice that cryptocurrencies are moving up and down every day even by 15% of the value. 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 make good money?
First of all, cryptocurrencies have recently entered the mainstream, so all the news related to them and rumors are “hot”. After each statement of civil servants about the possible regulation or prohibition of the cryptocurrency market, we notice huge price movements.
Second, the nature of cryptocurrencies is more like a “stock of value” (as gold has been in the past) – many investors see them as an option to invest in stocks, physical assets such as gold and fiat (traditional) currency. The transfer rate also affects the volatility of the cryptocurrency. For the fastest, the transfer takes even 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 types of assets.
What everyone should keep in mind – this speed also applies to lifetime trends in cryptocurrencies. Although in regular markets trends could last for months or even years – here it happens within a couple of days or hours.
This brings 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 volume of trade compared to the traditional currency or stock market. Therefore, an investor who executes 100 million transactions on the stock exchange will not cause large price changes, but on the scale of the cryptocurrency market, this is a significant and noticeable transaction.
As cryptocurrencies are digital assets, they are subject to technical and software updates of cryptocurrency characteristics or expansion of blockchain cooperation, which makes it more attractive to potential investors (such as the activation of SegWit which basically doubled the value of Bitcoin).
These elements together are the reasons why we observe such large changes in cryptocurrency prices within hours, days, weeks, and so on.
But the answer to the question from the first paragraph – one of the classic rules of trading is to buy cheap, sell high – so everyday short but strong trends (instead of weaker ones that last for weeks or months as on stocks) give much more chances if used properly.