Volatility isn’t often seen as a good thing. In most cases, you’d want to minimize the variation to get more accurate results. But this isn’t the case for cryptocurrency.
Cryptocurrency is often viewed as volatile. And while that may initially sound like a bad thing, it’s actually what garners high interest from investors.
Why Is Cryptocurrency So Volatile?
Cryptocurrency as an asset class is still relatively new. Within the past decade, the market has been plagued with short-term and long-term price spikes that regularly see the value of each asset fluctuate by 20 per cent or more in a single day.
While this may sound like a bad thing, it’s actually the best sign of a healthy investment. The price of a cryptocurrency is a direct reflection of an investor’s confidence in the technology and underlying value of the asset.
Unlike traditional markets, cryptocurrency does not have a regulatory structure and doesn’t have any boundaries or limits. This means that the price is driven solely by the underlying supply-demand curve, which the market determines. Since cryptocurrency is still so new, there is no historical data to refer to, which makes it difficult to predict future price growth.
Another factor that contributes to the volatility of cryptocurrency is the immense amount of scams and frauds that occur within the industry. This is due to the anonymous nature of a blockchain. In order to facilitate a transaction, the transfer of funds must be verified on the blockchain.
Once the transaction is completed, there is no way to reverse or stop it. This could result in the loss of investor funds, which could then lead to a resulting decrease in the price of the asset.
Volatility, in this case, can be seen as a good thing, as it allows investors to quickly drop their position in the case of a scam. This can be extremely beneficial when compared to traditional markets.
How Can You Benefit from the Volatility of Cryptocurrency?
The volatility of cryptocurrency has its reasons, but you can still benefit from it.
Volatility can provide opportunities for investors to buy low and sell high. In order to take advantage of these price fluctuations, investors typically have to have a tight buying and selling strategy.
For example, an investor may be able to buy a cryptocurrency at a price that is lower than the market rate and sell it for more than the market rate when the price rises again.
Volatility also makes it easier for investors to invest in smaller quantities of cryptocurrency. This can be extremely important for individuals who want to invest in a cryptocurrency but don’t want to use the majority of their life savings.
For example, if an investor wanted to invest in Bitcoin, they could split their investment into smaller portions. They could buy $500 worth of BTC, $1,000 worth of BTC, and $2,000 worth of BTC. This would ensure that if the price of BTC dropped by 50 per cent, the investor would still have a positive return on their investment.
The volatility of cryptocurrency can be seen as either a good thing or a bad thing, depending on who you talk to. However, when viewed in the correct light, investors can see volatility as an opportunity to make a profit.
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