This year we can see that cryptocurrencies tend to move up and down as much as 15% in value daily. Such price changes are known as volatility. But what if … it’s completely normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to make good profits?
First, cryptocurrencies have only recently entered the mainstream, so all the news and rumors about them are “hot”. After every announcement by government officials about the possible regulation or ban of the cryptocurrency market, we see huge price movements.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold was in the past) – many investors see them as a backup option to investing in stocks, physical assets such as gold and fiat (traditional) currencies. Transfer speed also affects cryptocurrency volatility. With the fastest ones, the transfer takes even a few seconds (up to a minute), making them a great asset for short-term trading when there is currently no good trend for other asset types.
What everyone should keep in mind is that the speed also follows the trends of the life span of cryptocurrencies. While in normal markets trends can last for months or even years, here it happens within days or even 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. So a single investor making a 100 million transaction in the stock market will not cause a huge price change, but at the scale of the cryptocurrency market, it is a significant and visible transaction.
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Because cryptocurrencies are digital assets, they are subject to technical and software updates to cryptocurrency features or blockchain collaboration, making them more attractive to potential investors (for example, the activation of SegWit basically doubled the value of Bitcoin).
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All of these elements combined are the reasons why we see such huge swings in cryptocurrency prices over the course of hours, days, weeks, etc.
But to answer the question from the first paragraph – one of the classic rules of trading is to buy low, sell high – so having short but strong trends every day (instead of weaker ones that last for weeks or months like in stocks) gives a lot more chances to make a decent profit if used correctly.