This year we can observe that cryptocurrencies tend to go up and down at least 15% in value every day. Such price changes are known as volatility. But what if … it is completely normal and the sudden changes are one of the characteristics of cryptocurrencies that allow you to make a good profit?
First of all, cryptocurrencies have made it into the mainstream recently, so all the news about them and rumors are “hot”. After each 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 like a “store of value” (like gold used to be) – many investors consider it as a backup investment option to stocks, physical assets like gold and fiat (traditional) currencies. The speed of transfer also has an influence on the volatility of cryptocurrency. With the fastest ones, the transfer takes only a few seconds (up to a minute), what makes them the best asset for short-term trading, when there is currently no good trend in other types of properties.
What everyone should remember – that speed also goes for trends in the life of crypto currencies. While in regular market trends can last for months or even years – here it happens within even 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 a very small amount compared to the daily trading volume compared to the traditional currency market or stocks. So an investor who makes 100 million transactions in the stock market does not cause a big change in price, but on the scale of the crypto currency market it is a significant and noticeable transaction.
Since crypto currencies are digital assets, they are subject to technical and software updates of cryptocurrencies features or expansion of blockchain collaboration, which makes them more attractive to potential investors (such as the activation of SegWit causing the value of Bitcoin to double ).
These elements combined are the reasons why we observe such a large change in the price of the price of cryptocurrencies within a few hours, days, weeks and so on.
But to answer 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 lasting weeks or months like stocks) provide more opportunities to make a profit if used correctly.