This year we can observe that cryptocurrencies tend to progress and down even by 15% of value on a daily basis. Such changes of price are known as a volatility. But what if… this is totally regular and sudden changes are one of the features of the cryptocurrencies allowing you to make a good profits?
First of all, the cryptocurrencies managed to get to the mainstream very recently, therefore all the news regarding them plus rumors are “hot”. After each statement of government officials about possibly regulating or banning the cryptocurrency market we observe large price movements.
Secondly the nature associated with cryptocurrencies is more like a “store of value” (like gold had been in the past) – many investors think about these as backup investment choice to stocks, physical assets like precious metal and fiat (traditional) currencies. The speed of transfer has as well a good influence upon volatility of the cryptocurrency. With the fastest ones, the exchange takes even just couple of seconds (up to a minute), what makes all of them excellent asset for short term investing, if currently there is no good craze on other types of assets.
What everyone should bear in mind – that speed goes as well for the lifespan trends on crypto currencies. During regular markets trends might final months or even years – here it takes place within even times or hours.
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This leads us to the next point – although we have been speaking about a market worth hundreds of vast amounts of US dollars, it is still really small amount in comparison with daily trading volume comparing to traditional currency market or stocks. Therefore a single investor producing 100 million transaction on stock exchange will not cause huge price modify, but on scale of crypto currency market this is a significant and apparent transaction.
As crypto currencies are usually digital assets, they are subject to technical and software updates of cryptocurrencies features or expanding blockchain collaboration, which make it more attractive to the potential investors (like activation of SegWit basically caused value of Bitcoin to become doubled).
These elements combined are the reasons why we are observing such large price changes in price of cryptocurrencies within couple of hours, days, days etc .