Have you ever wondered what is Bitcoin volatility or what causes volatility in Bitcoin? Not only Bitcoin but the entire cryptocurrency market is highly volatile. Bitcoin, when came into existence, was worth almost nothing. The leading cryptocurrency earned so much value over a short period of time that by 2017, the prices surged to an all-time high at $19,000. However, after a few months, the prices plunged down again to as low as $6,500. At the current moment, bitcoin is worth $5,43,872 with the market cap of $130,832,220,841 USD.
The high volatility of Bitcoin and other cryptocurrencies are due to various reasons. And the fact that it is good for your investment or bad depends on your strategy of trading. It true that the entire cryptocurrency market is full of risks and one wrong move can make you suffer high losses. But it is the only reason that you can earn high profits from it if you follow the proper strategy. In this article, we are going to discuss the same, the various reasons responsible for the high volatility of cryptocurrency and how you could benefit from it.
What Is Bitcoin Volatility?
Volatility describes the fluctuation in the price of financial assets over a time period. Not only Bitcoin, but all cryptocurrencies are also considered volatile because of high fluctuations in their prices. If you check the Bitcoin volatility chart, you will find out how quickly its price goes up and down on a regular basis. The cryptocurrency market crash in 2018 is a great example of volatility in cryptocurrencies. At a time, the price of Bitcoin went as high as $18,000 from $700. Whether you consider the high volatility of cryptocurrencies as a good factor or bad it depends on you. A person who wants stability might not want to invest in crypto, although those who like taking risks and explore their chances can take benefits from the high volatility of cryptocurrency. Furthermore, you must follow some strict strategies if you want to step into crypto trading in order to keep yourself safe from losses.
What Causes Volatility In Bitcoins And Altcoins?
Now that you know what is Bitcoin Volatility, let’s ask what causes it. There are various reasons for the high volatility in the prices of Bitcoin and altcoin market. Some of the common and major reasons are listed below:
Size of Cryptocurrency Market
Well if you are comparing the volatility of Cryptocurrency market to the volatility of the global stock market or bond market, you should also compare their market sizes. In 2018, the size of the entire cryptocurrency market reached $800 Billion. Even when the market cap of cryptocurrency was at an all-time high it was much lesser than the market cap of the stock market which was $76.3 trillion. At the same time, the global bond market was worth around $125 trillion.
The cryptocurrency market is new and people are just getting into it. It is not as developed as other markets that’s why it lacks stability. In comparison to stock and bond markets, cryptocurrency is just an infant.
Panic In The Market
Another major reason that contributes to the Bitcoin volatility problem is bad news. For instance, when Mt. Gox the major cryptocurrency exchange went bankrupt due to the largest hack in crypto history, it showed its effect on the entire market. It’s the headlines that mess up with the newbies’ minds. Anything happens in the market that concerns the future of crypto makes show its effect on the adoption rate. Such news includes the statements from the government about the regulation, security breaches in exchanges and geopolitical events. All of these contributes to the fear and panic in crypto users who either cash out their holdings or stops further trading.
Only the investors who understand cryptocurrency properly took benefits from such times and did not panic sell their holdings.
Good News Brings More Good News
Just like when bad news surrounds the market, it affects the adoption rate of crypto assets, good news brings more adoption to the industry. It’s quite simple to understand. The entire crypto market is new and so are the investors and traders. New investors get easily affected by the news and either panic sells their assets or starts making purchases due to excitement.
Crypto Market Lacks Liquidity
Many analysts have stated that the issues of liquidity in the market is the reason for high Bitcoin volatility Index. The issue can be addressed by attracting more market makers eventually decreasing the high fluctuations in prices on a daily basis.
How To Take Benefit From It?
You might think Bitcoin’s volatility a problem but it’s not true in every aspect. Many investors take benefit from Bitcoin’s high volatility while others suffer losses. It depends on your strategy on how you’ll end up with your cryptocurrencies and investments. One wrong moment can make you suffer great losses which is why you should make a proper strategy for Bitcoin volatility trading and does not get affected by sentiments.
Whether you are stepping into day trading and planning to HODL cryptocurrencies, you need to have it’s proper knowledge to avoid losses and to take benefits at the right time. If you are an amateur to crypto trading, you can follow Dollar Cost Averaging strategy which is the safest option. After sometime when you will be experienced and gain enough knowledge about cryptocurrency trading, you can move on to advanced trading methods such as margin trading.
We hope you are clear with the concept of what is Bitcoin volatility and ready to take risks by stepping into crypto trading. However, as said above do prepare your trading strategy beforehand to save yourself from various sentiments and losses. If you want to know more about bitcoin and altcoin trading strategies read our guides about the same. You can also read our articles about what cryptocurrencies are best for trading in 2020 and can provide you with profits. You should not invest more than you can afford to lose in any cryptocurrency. Moreover, instead of investing your money in a single crypto asset, you should consider investing in a few instead. This would eventually save you from the risks associated with a single asset.
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