This year we can see cryptocurrencies move up and down by 15% in value every day. Such price changes are known as volatility. But what if… this is completely normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to make good profits?
First of all, cryptocurrencies only recently became popular, so all the news and rumors about them are “hot”. We see big price movements after every announcement by government officials about possibly regulating or banning the cryptocurrency market.
Second, the nature of cryptocurrencies is similar to a “store of value” (as gold was in the past) – many investors view them as an investment option backed by stocks, physical assets such as gold and (traditional) fiat currencies. Transfer speed also has an impact on cryptocurrency volatility. With the fastest ones, the transfer takes even a couple of seconds (up to a minute), which makes it an excellent asset for short-term trading, if the current trend in other types of assets is not good.
What everyone should keep in mind – this speed as well as trends in the lifetime of cryptocurrencies. While trends in normal markets can last months or years, here it happens in even days or hours.
This brings us to the next point – although we are talking about a market worth hundreds of billions of dollars, it is still a very small amount compared to the daily trading volume compared to traditional currency or stock markets. So a single investor making 100 million transactions on the stock market will not cause a huge price change, but on the scale of the cryptocurrency market this is a significant and significant transaction.
Because cryptocurrencies are digital assets, they are subject to technical and software updates to cryptocurrency functions or the expansion of blockchain collaboration, which makes them more attractive to potential investors (for example, the activation of SegWit essentially doubled the value of Bitcoin ).
These elements combined are the reasons why we are seeing large price swings in cryptocurrency prices over the course of a couple of hours, days, weeks, etc.
But to answer the question in 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 patterns that last for weeks or months) allows for much more opportunities. if used properly to make a decent profit.