Irrespective of whether you are old or new, in the cryptocurrency world, you must know in general that some of its features are the driving force behind the digital asset’s recognition in the Crypto market. A
Among all the features, the volatility of cryptocurrencies is the most intriguing one since it seems to be higher than the others. With the globally rampant Covid-19 pandemic for over a year, the trend of increasing volatility is seen to be even more in these times.
A volatile digital assets
April 2020 reports on cryptocurrency’s volatility, specifically Bitcoin, measured for over 30 days were at an all-time high, peaking at 200%. Only 68% of volatility was recorded at an average level before 2020.
When compared to S&P 500 throughout the same duration its average level of volatility remained low to intermediate.
The volatility of cryptocurrency is what makes the digital asset more interesting and different from the conventional system. When the volatility test was recorded the price of Bitcoin reached an all-time high of just below $12,000 to just above $10,000; which is about a 17% fall within a week.
If you had invested in Bitcoin and shorted it in this timeframe, it would have been a huge payday for you!
Let the statements not scare you. The volatility of cryptocurrency is not entirely a bad thing to happen. An experienced crypto investor will tell you that the currency’s volatility is just another element in the world of digital assets; and that you can control it through proper management and investment strategies.
It is interesting to note that the higher the level of volatility, the more drastic the changes in prices. This means that you would be able to make significant gains only if you can mine it properly on cfds-trader.com.
To extract the profits, you must know how to handle the associated challenges which are also one of the fundamentals of investing in assets. Simply put, cryptocurrencies are just another technically complex asset that tends to be more volatile than the others.
What makes cryptocurrencies so volatile? Let us find out.
The reason behind Crypto volatility
If you have ever wondered why cryptocurrencies are so volatile than the other digital assets, then you are in for learning.
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Absence of centralisation
Since cryptocurrencies are not legal tenders they are not regulated by centralized banks.
Its decentralized nature means that there is no guaranteed safety from manipulation of the market and investors take advantage of this absence of regulation to make the market more instantaneous and unpredictable.
Decentralization also means that future predictions about the market status cannot be made.
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Absence of fundamental value
There is no inheritance value of cryptocurrencies since the tone on revenues aur bonus on return.
Defying the conventional norm of value, cryptocurrency’s value is driven by demand and quantity. The tangible asset that drives this technology is its real value.
This particularly complicates the aspect of adaptability and further adds to its unpredictability.
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Less institutional investors and more millennial investors
Most of the investors in cryptocurrency are between the age of 18 and 35 or the millennial group. Since they have been a witness of the 2008 financial crisis, they are supportive of the collapse of a centralized institution and thereby, completely supportive of a decentralized system.
On the other hand, cryptocurrencies lack institutional investors since they are the players in the conventional banks and financial industry; and they are still reluctant to try out the new volatile assets.
Conclusion
Since cryptocurrency is a sensation of the tech-savvy millennial group they are agreeable to handle the associated risks that come with investing in the digital asset. It is a good thing that cryptocurrencies rise and fall in value. You just have to know how to use your skills wisely to purchase and sell when the time is right.