Why cryptocurrency volatility is not a bad thing

Why cryptocurrency volatility is not a bad thing
The crypto market is known for its volatility. For those who are unfamiliar with the market’s extreme volatility, it can be a rough ride. In order to understand why cryptocurrencies are volatile, we have to take a look at the factors surrounding the market. What causes market volatility and is it really such a bad thing?

What is volatility?

Volatility is typically the statistical measure of the dispersion of an asset’s price. It describes an asset’s price fluctuation to either the up side or down side. The crypto market is known to be a very volatile market at times due to huge price surges and fast corrections.

Why is the crypto market volatile?

Here are some of the factors that affect the cryptocurrency market’s volatility:
  • News
    The price of cryptocurrencies is sensitive to news, good and bad. Common news articles that affect the market include news of hacks, fud, articles about regulations or governments banning the use of cryptocurrencies and statements by well-known figures in the investment and tech industries.
  • Adoption
    Bitcoin and other cryptocurrencies are still a relatively new concept, compared to traditional stocks and bonds. For the crypto market to really take off, it needs a larger user base/adoption. Until more people use cryptocurrencies, the market is likely to continue being volatile.
  • Ponzi Schemes and Scams
    As long as people believe cryptocurrencies is a get-rich-quick scheme, Ponzi schemes and scams will exist. Ponzi schemes and scams occur when companies promise investors unrealistic returns on their investment and fail to deliver. This leads to investors losing money and losing interest in the crypto market.
  • Hacks
    Security breaches and hacks are known to cause extreme volatility in the crypto market. For example 850 000 Bitcoins were stolen during the infamous Mt. Gox hack. These type of events “spook” the market and causes volatility.
  • Supply & Demand
    As is the case with most industries, supply and demand plays a big role in the volatility of the cryptocurrency market. When demand is low, a small market correct will have a far greater effect on the market as opposed to when there is a high demand and market moves are not felt as severely.

Volatility = Opportunity

Market volatility is a powerful investment strategy. If you can buy cryptocurrencies when the market is down, you have the opportunity to get higher returns when the price moves to the upside. Market volatility is a buying opportunity. Furthermore, be sure to have a diversified portfolio in case one investment is underperforming, another can outperform. AltCoinTrader features a wide variety of reputable cryptocurrencies investors can choose from. Be sure to register on South Africa’s favourite cryptocurrency exchange and invest wisely.