As cryptocurrencies become more and more famous because of all millionaire stories, questions about crypto volatility arise.
This article will answer your questions about it!
What is Volatility In Crypto?
Volatility in both traditional and crypto markets is the range and speed of price movement. Usually, the higher the volatility, the higher the risk.
Cryptocurrencies are currently the most volatile asset class for investments. It is important to understand crypto’s volatility since volatility displays risks and understanding your tolerance to risks is crucial for a good investor.
A perfect example of price volatility in crypto is Bitcoin.
For instance, from June to August of 2013 the Bitcoin price remained slightly above $100, however, in October it experienced a massive spike in price and reached $1149 on November 30.
Another case of this phenomenon was the 2017 Bitcoin price growth. In a year the price jumped by almost 27,000% percent from $700 to $20,000. Subsequently, the price decreased to $6,973 in fifty days.
Why Is Crypto Volatile?
One of the first reasons for crypto’s volatility is the lack of regulations. One of the main selling points of crypto is decentralization, but with decentralization comes an unregulated market. Although governments are taking action to enforce laws on crypto coins, these aren’t fully developed yet.
As a result of the unmanaged market, the crypto market is full of fraud, money laundering, terrorist funding and market manipulations. This in hand reflects on the price movements.
On the other hand, institutions are slowly accepting cryptocurrencies, especially Bitcoin, however, it’s far less institutionalized compared to fiat.
In every market, a higher risk is related to a potential of creating greater income. If your risk tolerance is high, cryptocurrency investments are for you. Crypto volatility can be used to generate more money.
Of course, this isn’t to say that there are no relatively safe investments in crypto, but the stakes are always higher.
At the same time, as crypto-asset prices fluctuate, it is hard to know if you’re investing in the right coin. Moreover, these aggressive price changes are unpredictable as they rely on many factors.
At the end of the day, volatility is a two edged sword.
Ways to Combat Volatility
The crypto market is still new and has low liquidity. Nevertheless, the transactions are increasing every year and this gives hope to crypto enthusiasts.
Over time, as institutions and individuals start adopting crypto coins and the market grows, the prices will stabilize.
Another solution to the volatility issue is Stablecoins. These crypto-assets are backed by assets like The USD, GBP and more. Stablecoins are much more stable than other crypto coins. However, they can’t generate great returns. The coins move with fiat currencies and are easily tracked with your crypto portfolio tracker.
Most/Least Volatile Cryptocurrency
The most volatile crypto coins are low market cap coins. However, they are also highly susceptible to manipulation and fraud. Popular cryptocurrencies with high volatility are Verge, Nano, Metaverse ETP, Stellar and Tron. Stellar is an especially interesting one since it is one of the TOP 10 cryptocurrencies. Just follow xlm news to stay up to date.
The least volatile assets are the ones with higher market caps. The least volatile crypto coins are Tether, Bitcoin, Ether and Dash.
Overall, investing in cryptocurrencies is a decision that you should make independently taking into consideration your risk tolerance. But if you do choose to take the risk, I’d suggest using a crypto tracker to control your assets. Check out this amazing guide to cryptocurrency portfolio management to learn more!