This year we can observe that cryptocurrencies tend to move up and down by as much as 15% in value on a daily basis. Such price changes are known as volatility. But what if… this is completely normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to make good profits?
First of all, cryptocurrencies have only recently reached the mainstream, therefore all the news and rumors about them are “hot”. After every announcement by government officials about possible regulation or banning of the cryptocurrency market, we see huge price movements.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold was in the past) – many investors consider them a fallback investment option to stocks, physical assets like gold and fiat (traditional) currencies. Transfer speed also affects cryptocurrency volatility. With the fastest ones, the transfer takes even just a few seconds (up to a minute), making them an excellent asset for short-term trading if there is currently no good trend in other types of assets.
What everyone should keep in mind – this speed also affects the trends in the lifespan of cryptocurrencies. While in regular markets trends can last for months or even years – here it happens within days or even hours.
This brings us to the next point – although we are talking about a market worth hundreds of billions of US dollars, this is still a very small amount compared to the daily trading volume compared to the traditional forex market or stocks. Therefore, an investor making a transaction of 100 million in the stock market will not cause a huge change in price, but on the scale of the crypto currency market, it is a significant and noticeable transaction.
Because cryptocurrencies are digital assets, they are subject to technical and software updates to cryptocurrency functions or expansion of blockchain collaboration, making them more attractive to potential investors (with the activation of SegWit basically doubling the value of Bitcoin).
These elements in combination are the reasons why we see such huge changes in the price of cryptocurrencies within hours, days, weeks, etc.
But to answer the question in the first paragraph – one of the classic rules of trading is to buy low, sell high – so having short but strong trends every day (rather than much weaker ones lasting weeks or months like in stocks) gives a lot more chances to make a decent profit if used correctly.