This year, we can observe 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… this is completely normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to earn good money?
First of all, cryptocurrencies have come into the mainstream very recently, 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 large 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 fallback 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 – that speed also applies to cryptocurrency lifetime trends. While in regular markets trends can last for months or even years – here it takes place in a few 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 trading volume compared to the traditional currency market or stocks. Therefore, one investor making a transaction of 100 million in the stock market will not cause a large change in price, 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 to cryptocurrency features or the expansion of blockchain collaboration, making it more attractive to potential investors (such as the activation of SegWit essentially doubling the value of Bitcoin).
These elements combined are the reasons why we see such large changes in cryptocurrency prices within hours, days, weeks, etc.
But to answer the question in the first paragraph – one of the classic rules of trading is to buy low and sell high – so having short but strong trends every day (rather than weaker ones that last for weeks or months like in stocks) gives you a much better chance of making a decent profit if is used correctly.