This year we can see that cryptocurrencies tend to move up and down even by 15% of the value daily. Such price changes are known as volatility. But what if … this is perfectly normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to make good profits?
First of all, cryptocurrencies have reached the mainstream only recently, which is why all the news about them and the rumors are “hot”. After each statement of government officials for possible regulation or ban on the cryptocurrency market, we see a huge movement in prices.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold was in the past) – many investors see them as an option to back up stocks, physical assets such as gold and fiat (traditional) currencies. The transfer rate also affects the instability of the cryptocurrency. The fastest transfer takes only a few seconds (up to a minute), making them an excellent asset for short-term trading if there is currently no good trend for other types of assets.
What everyone should keep in mind – this speed also applies to trends in the life of cryptocurrencies. While in regular markets the trends can last for months or even years – here it happens within even days or hours.
This brings us to the next point – although we are talking about a market worth hundreds of billions of dollars, it is still very small compared to the daily trading volume compared to the traditional foreign exchange market or stocks. Therefore, an investor who makes 100 million transactions in the stock market will not lead to a huge change in price, but on the scale of the cryptocurrency market, this is a significant and noticeable transaction.
Because cryptocurrencies are digital assets, they are subject to technical and software updates to cryptocurrency features or extended blockchain collaboration, making it more attractive to potential investors (activating SegWit mainly doubles the value of bitcoin).
These elements combined are the reasons why we see such huge changes in the prices of cryptocurrencies within a few hours, days, weeks, etc.
But the answer to the question in the first paragraph – one of the classic rules of trading is to buy cheap, to sell high – hence the presence of short but strong trends every day (instead of weaker ones that last weeks or months as in stocks) , gives a much better chance to make a decent profit if used properly.