This year we can see that cryptocurrencies tend to move up and down as much as 15% of their value on a daily basis. Such changes in price are known as volatility. But what if … this is completely normal and sudden changes are one of the features of cryptocurrencies that allow you to make good profits?
First of all, cryptocurrencies have hit the mainstream recently, so all the news about them and the rumors are "hot". After every statement by government officials about a possible regulation or ban on the cryptocurrency market, we are seeing a huge price movement.
Second, the nature of cryptocurrencies is more like a "store of value" (as gold has been in the past) – many investors see this as a reserve investment opportunity for stocks, physical assets such as gold and fiat (traditional) currencies. Transfer rates also affect the volatility of cryptocurrency. With the fastest ones, the transfer only takes a few seconds (up to a minute), making them an excellent short-term trading asset if there is currently no good trend for other types of assets.
What everyone should keep in mind – this speed goes so well for the trends in the life of cryptocurrencies. While regular market trends can take months or even years – this happens within even days or hours.
This brings us to the next moment – 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 foreign exchange market or stocks. Therefore, an investor who has completed 100 million transactions in the stock market will not cause a huge change in prices, but in the scale of the cryptocurrency market it is a significant and noticeable transaction.
Because cryptocurrencies are digital assets, they are subject to technical and software updates to the functions of cryptocurrencies or to expand blockchain collaboration, which makes it more attractive to potential investors (such as the activation of SegWit, which essentially doubles the value of bitcoin) .
These combined elements are the reason why we see such huge changes in cryptocurrency prices within hours, days, weeks, etc.
But the answer to the first paragraph – one of the classic rules of commerce is to buy cheap, sell high – so there are short but strong trends every day (instead of a weaker one lasting weeks or months, like shares) gives you much more chances to make a decent profit if used properly.