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:
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.
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.
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.