The cryptocurrency market is identified as a veritable means to make money. It is to trade and make gains with crypto as a result of the volatility of the market. For corporate finance managers, the subject of volatility is an important subject. They know that volatility implies greater risk and higher risk leads to better returns.
So, the effect of cryptocurrencies on the global economy is one that is closely associated with its disruptive power. The lure of higher returns makes it attractive to investors, and this is not strange to economic analysts.
A fact of cryptocurrency markets is the short time span that traders hold on to them. This effectively means that most buyers buy and sell on the short term to earn immediate gains. Other players in the market might hold on to them for longer time frames, but the most active traders maintain short turnaround times.
A Look at Crypto Volatility
The volatile nature of cryptocurrencies is seen in the price swings that are largely unpredictable. Bitcoin value in 2017 witnessed an astronomic 900% increase that drew the attention of many people around the world. The rise of bitcoin became the poster child for the use and awareness of cryptocurrencies. The massive rise in price was way too attractive to be ignored around the world.
In 2018, the value of bitcoin nosedived by 80 %, and many investors who got in on the fear of missing out were stunned. The underlying lesson was that the market is is subject to change easily. Despite the fact that news headlines are not always factual, they exert a great pressure on financial markets. So, the core drivers of volatility in the cryptocurrency scene are identifiable.
Poor liquidity has a massive role to play in the volatility of the cryptocurrency market. If a token is massively traded and the participants are few, the room exist for manipulation. So, when a large order goes into the market, it is likely to make an impact. And in any case, an immediate swing in prices will result. With few traders in the sector, it is easier to expect price volatility than otherwise.
Uncertainty is a situation that presents no clear headway. When a precise direction is absent, there ample room for doubts. In the cryptocurrency market thus far, the paucity of understanding of the dynamics of crypto has made governments to foot-drag on regulation. While many analysts give their opinion on the direction that regulation will take, the market suffers.
When the decision of US SEC on bitcoin ETFs was thought to be imminent in 2018 Q4, the market witnessed a resurgence. However, as doubts set in over a delayed decision, there was a return of the crypto winter. This concisely exemplifies how the volatility of crypto looks like. So, in a sense, a positive sentiment somewhere around the world can drive the price of crypto up or down. The market can witness a low all-week only to rebound when a report emerges of a positive regulatory announcement.
Fear and Rewards
There is a role played by fear in the crypto market place. This is somehow explainable. The use of trade signals is largely practiced by crypto traders. This means that a bandwagon effect can result when reports emerge that a new investment is made with an existing blockchain. For example, there was a wild swing in the price of Tron in 2018 when the platform acquired BitTorrent. This led to a mad scramble to get a hold of TRX in the crypto marketplace.
The average investor in a bid not to miss out on expected rewards associated with a given crypto contributes to price volatility. This easily happens when a huge demand arises for a particular token or coin. However, as might be expected, after a while, the hype will fade, and a massive drop in price will occur.
The Importance of Volatility
A volatile market provides ample room for gains to be made by traders. Here, cryptocurrency offers a lot of rewards for risk takers. The timing of a trade, therefore, leads to a wild gain or massive loss depending on where you stand. The use of arbitrage tools became necessary in the cryptocurrency market as a result of this fact. By deploying cryptocurrency trading bots, a trader can minimize losses and maximize gains amid volatility.
So, in the absence of price swings, the use of bots would be unnecessary as the market will be largely predictable. However, as crypto trading stands, the life wire it enjoys is volatility. This has led to the massive use of trading bots and arbitraging around the world. Margin trading has become the norm, and some exchanges like Bitmex thrive on this. Bitmex signals are popular today as result of the exchange’s margin trading tools.
What is the Impact of Volatility?
Volatility can also be understood from the angle of mood swings. In clear terms, the young, mobile, and active males can be expected to be in the heat of things. According to a Bloomberg survey, young male adults are very much into cryptocurrency. The motivation is explainable. The lure to make fast money is strong among this class. They are less patient and largely in a hurry. When this factor is added to the others above, it becomes clearer why cryptocurrencies are burgeoning.
Trading of crypto in the global financial market is growing, and there are several players in the sector. Notably, money transfer considerably drives a huge percentage of activities here. This is also a notable use of cryptocurrencies around the world that is hugging the headlines.
For crypto traders, as long as the market is volatile, there is money to be made. The risk is present, the reward is known, and the threat of losses loom large.
Stevan Mcgrath, is a Bitcoin and cryptocurrency enthusiast, passionate about the potential these tools and blockchain technology bring to the world and writes consistently for CoinReview. He has been following development of blockchain for several years. To know his work and more details you can follow him on Twitter, Linkedin.