Volatility Of Cryptocurrencies: Why Is It Important?
The rollercoaster can be a positive indicator.
2018 was a challenging year for Bitcoin. Not only the market downtrend pushed its value down but also scared its most affectionate investors. This fact reveals that cryptocurrencies – like any other market share – are volatile and also susceptible to go up… and down.
In simple words, volatility is the opposite of being stable: it means change and range in pricing. Even though a price in the market is not solid, it can be measured, predicted and represents a positive movement in most situations.
Volatility in the market: what does it mean?
On technical terms, volatility is a “statistical measure of dispersion of returns for a given security or market index”. Higher the volatility, riskier the security. In the securities market, for instance, volatility is associated with swings: when the stock market rises and falls more than 1% over a supportable period, it can be considered volatile.
Basically, volatility is a meter that shows how “frisky” the price movement is. It tells trades what are the prices’ chances of fluctuating in either direction. The magnitude of the risk is predicted with volatility.
The indicator can be measured by using a “standard deviation” between returns from the same security or market index.
Why volatility of cryptocurrencies important?
Cryptocurrencies are very different from market stocks because they’re digital, encrypted and have no global regulation (which discourages institutional investment in most countries).
What makes Bitcoin and alternative coins more volatile than ever is the fact that their regulation is limited and allows a bigger market manipulation. Regulation not only protects investors and specialized pools from bad actors but also attracts the interest of more long-term supporters.
Also, volatility can represent a value and use cases development for cryptocurrencies. While products like oranges have one purpose in the whole world (eating and making juice, for instance) and its price can’t be changed much, cryptocurrencies have a lot of uses and aren’t as familiar for everybody.
Cryptocurrencies are new and can move around a lot more. Bitcoin, Litecoin (and many others) are gaining power and credibility in trading platforms, as well as among market investors.
They’re gaining value based on what people can do with cryptocurrencies through the blockchain, so we can predict that its price will also rise due to popular knowledge around it.
When the laws of supply and demand reach cryptocurrencies more strongly, the volatility will slow its pace and become more stable than ever – hopefully, Bitcoin’s price will also rise as well.
What are your thoughts? Do you think Bitcoin’s volatility will stabilize over the next years? Let us know your opinion (it is very important to us!) on BitClub Network’s official Facebook page!