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What is Volatility? And why is it crucial?

(Volatility is significant for the crypto market and can help investors to make big profits, this guide will help you to understand this term)

Cryptocurrencies are booming in the market, catching the eye of new investors, but high price volatility keeps many of them out of this market. Users are very concerned about volatility when it comes to investing. In the past, cryptocurrency has shown high crypto volatility keeping many investors in the line. Healthy volatility brings many valuable purposes and valuable opportunities for profits. 

Volatility, in simple terms, refers to the fluctuations in the market. It measures an asset value and how much it’s surged or plunged over time. 

The price shift in cryptocurrencies can steadily increase and decrease when an asset price changes rapidly in the market. 

In the traditional sense, the more volatile an asset, the riskier it is to be an investment option. The risk also represents that the asset can quickly offer significant returns or higher losses. 

One of the primary reasons cryptocurrencies are highly volatile is their newness.

Crypto has gained enough prominence in the years after its launch of the first-ever cryptocurrency, bitcoin, in 2009.

Volatility in the crypto market can be defined as the rapid price moments. It can help you to understand how quickly an asset price increases and decreases. Volatility is also the primary factor that defines the risk associated with the investment.  

How is volatility measured? 

When anybody discusses volatility, they mean historical moments in the cryptocurrency prices that previously occurred in the past. The term can be widely defined as historical volatility, which represents a number acquired from the studies of the prices for a certain period, e.g., approximately a month or a year.  

This prediction in cryptocurrencies’ future movements is known as imperial volatility. However, Nobody can exactly predict the price movement in cryptocurrencies. It’s less than actual science; hence widely referred thorough some terms. 

Volatility can be calculated using two methods:- 

Beta:- Beta is one method that measures how volatile an asset is per the broader market.  

Understanding healthy market volatility for crypto

When the crypto market swings between highs and lows, traders and investors benefit from this price movement.

However, this type of price moment in the market is rare. Every day what we see in the market is an example of moderate or healthy volatility. Significantly price movements occur as the investors and traders respond to the market information in the market, big industries, and companies. Investors and traders asses the entire market and buy and sell cryptocurrencies accordingly. 

Most investors believe that the crypto market is in a different league. There is no tangible way to measure crypto volatility. You can see the historical price movements to counter the price of assets in the market. 

In 2017, the cryptocurrencies hiked by 125 %, and in 2020, the price surged again 1000 % higher than in 2017. Factors that can increase or decrease volatility are negative and positive news. Unusual hikes or plunges are the results of this type of news and coverage that can bring better and worst ever expected. 

Many investors believe price volatility in the mainstream market is also responsible for cryptocurrencies. New development and speculation in the prices are bringing a high surge or downfall in the crypto market and main market. As a result, crypto market is also lacking a robust infrastructure where big investors and trading firms could be connected and create a profitable ecosystem.

High volatility and less volatility sometimes create risky situations and outcomes in the market. Apart from bitcoin, other than popular cryptocurrencies also lacks derivatives. This sometimes brings healthy volatility both in the mainstream and crypto market, and many times also, investors lose big money.

Traditionally some investors find volatility will diversify their investment, giving them the opportunity to invest within an asset class while managing the risks. As an asset class, crypto has had a subsequent rise and downfall in past decades, considered more risky and volatile than any other market.

Final words

For some investors, Volatility is part of the important part of the crypto market, which sometimes can create big profits and sometimes losses. It depends on how much risk you can bear.

As an investment asset, cryptocurrencies can be volatile, but with the right strategies and pricing structure study, you can hold the risks and counter it positively. For risk tolerance, some strategies can help mitigate the risk and limit the downside impact of volatility. We hope this will be helpful for you and provide a better understanding of the crypto market.