The Top 3 Reasons for Cryptocurrency Market Volatility

Therefore, to have cryptocurrency volatility that works for you entails a well-thought-out investment plan tailored to your financial goals and financial situations. Such a plan should cushion you during the market’s ups and downs and grab the opportunity once it lies in your favor. Crypto-assets, for the longest time to come, will always be an unknown commodity. They simply don’t have the technical indicators of the traditional stock market which are usually used to analyze an asset. After serving the Bitcoin community for multiple years, acquiring trust and support from traders, the exchange started halting withdrawals.

High-volatile assets, on the other hand, moves up and down in value rapidly and more aggressively. U.S. Treasuries and German bonds, the benchmarks of global borrowing markets and traditional go-to assets in troubled times, lost 16% and 24% respectively in dollar terms. Despite the fact that a new country was making crypto mainstream, bitcoin values fell. Many investors worried that El Salvador’s troubled economy could burden the value of BTC. Understanding crypto volatility can be tricky, but there are a handful of broad reasons you can look at to determine why a particular cryptocurrency is falling. One of the primary contributors to cryptocurrency price movements is prediction and hype.

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The first step to that is to practice emotional control and leave the panicking behind. Because the market will give you various reasons to panic on day to day basis but you have to overcome that and crypto volatility tracker handle volatility in a better way. That’s why cryptocurrencies that have a lot of coins in circulation experience lower prices than cryptocurrencies that don’t have as many coins in circulation.

Since November 2021, when Bitcoin was at its peak of almost $68,000 USD, the cryptocurrency lost more than half of its value in the following six months. The speculative nature of cryptocurrencies and their high volatility led to the creation of stablecoins, which act as a bridge between the crypto ecosystem and the traditional financial world. Stablecoins are designed to hold a stable value by pegging to a reference asset such as fiat currency . They create a more stable cryptocurrency and are typically backed by fiat assets, crypto assets, or an algorithm.

A Deep Dive Into Crypto Valuation

The first and largest cryptocurrency based on market capitalization – Bitcoin – experienced massive growth in 2017, growing from $700 to almost $20,000! Even outside of its volatility, the cryptocurrency market doesn’t behave like any other investments, sparking the interest of institutional investors looking to boost their exposure to uncorrelated returns. These statistics prove that young millennials are more attracted to high-risk investments such as cryptocurrencies, as compared to their older counterparts. A more volatile market generates bigger price moves, which in turn may provide greater opportunities to earn a tremendous rate of returns on investments. Lesser volatility equates to lesser price movements and therefore, a lower probability of earning the desired returns.

Now, it is important here to understand that we take the supply in circulation at the moment to calculate the market cap rather than the total supply of the coin. So, now that you understand the market cap, you are in a better position to make an insight about the market situation by reading https://xcritical.com/ the data of the same. Kate is a full-time web3 writer who has been involved in the cryptocurrency and blockchain space since early 2017. She has a passion for decentralization and the potential of Web 3.0 technologies to empower individuals and create a more equitable and inclusive world.

Crypto Whales

Since their emergence, cryptocurrencies such as Ethereum and Bitcoin have seen dramatic price jumps and drops—sometimes within seconds, many investors scratching their heads and asking how such turbulence can arise. The daily returns dispersion is markedly higher for the three stablecoins than for the fiat exchange rates, with DAI showing the largest dispersion (see box-plot graph in chart 25). As seen in table 5 below, the historical correlation since 2018 between the daily returns of the crypto assets, SPX and the largest three stocks is less than 0.3.

Cryptocurrencies have also consistently maintained a higher volatility than the tech index, as shown in chart 14 below where we plot the rolling volatility. The aforementioned stablecoins have relatively successfully maintained a value close to their peg over their limited history. Dogecoin, ShibaInu, and the other meme coins rallied in March and July respectively. This preeceeded Bitcoin and ETH’s ATH. However, in the past month, DOGE is down 38% and SHIB by 32%. Further, while BTC, ETH, DeFi coins and NFTs serve a particular purpose, meme coins are mean only for price appreciation.

BTC-USD

In the first quarter of 2022, when the market has been dominated by fears of inflation and war uncertainty in Europe, we did not see increased trends in correlation for gold and the crypto assets. Going into the third quarter we see though a positive slope in rolling correlation . What investors should look at, in addition not in place of these assets, is core satellite asset. This could be large capitalization cryptocurrencies like BTC or ETH, or even stablecoins like USDC and USDT.

The crypto market is still in its formative teenage years as an asset class. Like most teenagers, it is relatively underdeveloped, immature, and highly volatile. This volatility is a feature, rather than a bug, of crypto’s high growth phase, presenting both challenges and opportunities for traders and investors alike. The relatively small size of the crypto market also yields less depth for large traders. By comparison, the gold market cap is currently US$11.75 trillion and the total U.S. stock market is valued at circa US$45 trillion.

However, it provides a core for one’s portfolio and balances out the volatility at either end. Uncertainties are the major cause of market volatility in cryptocurrency markets. This can be triggered by inflation and interest rate, tax exchanges, and other cryptocurrency policy. The market is highly volatile and that’s its beauty, this is what makes it trade fascinating and risky all at the same time. While it’s very difficult to understand or predict market movements with utmost precision but what you can do with certainty is stay prepared for the same.

S&P Futures

When a new cryptocurrency launches, it typically experiences an initial spike of excitement as people hear about it for the first time. This often causes people to rush to buy and sell the new coin, which drives up the price to unsustainable levels. All of this makes this an appealing choice for relatively inexperienced investors who buy into cryptos the way some people buy lottery tickets. Because of this, the investor profile for a lot of these stocks can promote a high degree of volatility. The subject of volatility first really started to enter the public eye with the rise, fall, and return of Dogecoin. It was a case study in the volatility of this asset, but many people were not fully aware of which factors were influencing the ebb and flow of this asset’s value.

• The frequency and extent of changes in the value of a currency is what’s called thevolatility of a currency.
• And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
• One of the main factors contributing to crypto price swings is speculation and hype.
• A qualified professional should be consulted prior to making financial decisions.
• Crypto assets and blockchain define an ecosystem that exhibits significant differences from the existing financial system .

Yaad Finance is here to educate and expose as much Jamaicans Yaad and a broad, about financial literacy, investment, real estate and much more. We’d like to share more about how we work and what drives our day-to-day business. Thus, it is very essential to not throw around money based on what a YouTuber, Instragrammer, or pseudo- celebrity said. It is likely they have vested interests in those projects, which is why people have heard more about Tron or Bitconnect, instead of a Waltonchain or Loopring.

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Nevertheless, we believe that crypto assets and blockchain technology are here to stay. Significant price swings that would be considered major events in traditional financial markets are a regular occurrence in the world of crypto. Volatility is an important market concept for any investor or trader to understand before engaging in different types of investments.

Miners may give up and migrate to another cryptocurrency if their mining efforts are no longer profitable. However, this causes short-term fluctuation in cryptocurrency prices as miners shift to more valuable tokens or hold onto tokens for more extended periods. This volatility may impact specific coins’ long-term performance, causing them to lose a market share over time. Pegged fiat currencies are a legal tender whose value is backed by governments and precede the recent expansion of stablecoins. A natural question to ask is whether stablecoins and traditional fiat pegged currencies exhibit similarities in terms of volatility.

Data from Dune Analytics, states that NFT traded volume in November 2021 was 41% below that of August 2021. However, the median NFT sale price reached a new all-time high of $780 despite fewer sales. The value of your crypto is based on the current exchange rate for each cryptocurrency you own and how much of it you have. And though altcoins are often overlooked, their market share has grown substantially over the past five years. Traders with significant amounts of crypto regret not having sold their crypto when prices drop beyond their expectations. This could result in traders making hasty decisions that will eventually lead to losses.

In the past few years, crypto assets exhibited significantly more volatility than equities. Chart 10 below shows the rolling annualized volatility for crypto assets, SPX and the top three SPX holdings. The volatility stays above 60% for the cryptos, excluding stablecoins, while the top three SPX holdings exhibited less volatility.

Crypto tends to have stronger, more frequent volatility compared to more traditional assets. Still, the stock market carries its own risk, especially during times of economic distress . Historically, daily return correlations for stablecoins and the HKD/USD exchange rates are low as shown in Table 7. Noticeably, the high returns for crypto assets have exceeded the ones for gold, which distinguishes them as high reward assets rather than value storage assets, see chart 21 below.

An example of free market trading that is susceptible to huge price swings when unregulated.The red outlined box plots change in percentage of Gold prices, when the market was still unregulated and in that sense, “free”. Compare this to the right side of the chart, and Bitcoin displays a similarly trajectory, only magnified in nature. However, any one who has spent an hour tracking crypto prices is bound to notice price swings that certainly render the market to look intimidating and scary.

Shortly later, they released a statement that a large-scale hack had occurred. On the 7th of February, the exchange halted all withdrawals, revealing that the hackers had absconded with more than 850,000 Bitcoins. Whether or not the loss was a result of the hack or due to poor bookkeeping on the exchange’s behalf is a matter of open debate, but there’s no doubt that the event negatively impacted the price of Bitcoin for several years. This difference, this volatility, between the supply and demand causes crypto price to rise and fall until an equilibrium is reached. In average, daily returns were positive, volatility was still the highest, but an almost 8% drop in GBP value does not seem a lot better than the 15% drop of BTC. Pessimistic because Crypto is very volatile and is a Ponzi scheme where no one will benefit.

Table 3 below summarizes the largest price decline for the studied sample. Crypto exchange rates are constantly changing because they represent the average buy and sell prices over the past 24 hours. You can use the interactive graph for each cryptocurrency to track changes in market prices. We sell different types of products and services to both investment professionals and individual investors.