This year we can notice that cryptocurrencies tend to move up and down even by 15% of the value on a daily basis. Such price changes are known as volatility. But what if … this is perfectly normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to make good money?
First of all, cryptocurrencies have come into the mainstream very recently, so all the news about them and the rumors are “hot”. After each statement of civil servants about the possible regulation or prohibition of the cryptocurrency market, we notice large price movements.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold has been in the past) – many investors see them as a reserve investment option for stocks, physical assets such as gold and fiat (traditional) currencies. The transfer rate also affects the volatility of the cryptocurrency. With the fastest, the transfer takes even just a few seconds (up to a minute), which makes them a great tool for short-term trading, if there is currently no good trend on other types of assets.
What everyone should keep in mind – this speed also applies to the lifetime trends of cryptocurrencies. While in regular markets trends can last for months or even years – here it takes place in a couple of days or hours.
This brings us to the next point – although we are talking about a market worth hundreds of billions of US dollars, it is still a very small amount compared to the daily trading volume compared to the traditional currency market or stocks. Therefore, one investor who makes a transaction of 100 million on the stock exchange will not cause a big change in price, but on the scale of the cryptocurrency market, this is a significant and noticeable transaction.
As cryptocurrencies are digital assets, they are subject to technical and software updates of cryptocurrency characteristics or the expansion of blockchain cooperation, making it more attractive to potential investors (such as the activation of SegWit has basically doubled the value of Bitcoin).
Combined, these elements are the reasons why we observe such large changes in the prices of cryptocurrencies within a few hours, days, weeks, etc.
But the answer to the question in the first paragraph – one of the classic trading rules is to buy cheap and sell expensive – so having short but strong trends every day (instead of weaker ones lasting weeks or months like stocks) gives you a much better chance of making a decent profit if is used properly.