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The Volatility Of The Cryptocurrency Market

Updated on February 11, 2018

Of Cryptotraders, Wins and Losses

Cryptocurrency trading has truly taken the world by storm. Media hype, initial coin offerings (ICOs) every other day, new crop of millionaires, and of course, the lambo memes on Twitter. It is one of the youngest financial markets but has already proven to be a formidable challenge to traditional commodities. Clamped down on by China, treasured by Switzerland, mixed signals from South Korea, to a gradual embrace by the US, governments around the world are getting around to cryprocurrencies. All through it’s life, traders have had to deal with a lot of fluctuation and volatility. Is this normal? Or is it a deal breaker? In a nutshell, it is not something to worry about. In fact it is something to celebrate and take advantage of. Below is all the information you need to help you understand the volatility of the cryptocurrency market and how to make the most out of it. That way, whether it is a massive Bitcoin drop or a sudden upward move for Altcoins, you as the trader will always be on the winning side.

Why is it always changing?

Volatility is one of the most dynamic phenomena in the financial market industry. Some commodities including currencies and stocks are literally always changing with this volatility being common. For instance, Monday the 5th of February was a scary day on WallStreet, with the Dow plunging almost 1,600 points, which was the biggest point decline in history during a trading day. Others on the other hand including real estate are a little more static. With the cryptocurrency market, the volatility is on steroids. For instance, it's price decreased by 94% in 2011 due to effects of the MtGox hack, but by 2013 it had shot back up by a whopping 1504%. Below are some of the reasons for such fluctuations and examples of how it affected the market.

- The sudden surge of traders

This means that for the most part, the value and progress of different currency is controlled by human emotion. As a result, both minor and major changes in the global financial, political and even social climate can cause a change in the market. A great example of this is the increase in value of Alt Coins in March 2017. By the start of 2018, there were 42 cryptocurrencies with a market capitalization of more than $1 billion. Exchanges like Binance were even temporarily halting the creation of new accounts due to the sheer numbers that were bearing on their systems.

- It is a new market

People are still not fully confident in the market’s stability. As a result, any small change could lead to mass panic and as a result sudden drops in the currency’s value. This was seen with the June 2012 Linod drop after word got out that the company had been hacked. Traders panicked as they didn’t know what this meant for the online-based currency system and dumped their stakes in the market in masses. FUD (fear, uncertainty and doubt) has seen Bitcoin “die” multiple times, but it always manages to claw its way back up, smashing through it’s previous all-time highs (ATH).

Bitcoin "deaths"

...and like the phoenix, it rises.
...and like the phoenix, it rises.

- Strict regulation from banks and governments

It is not only the masses that have their doubts about the market but also governments and other financial institutions. Strict regulations by these parties have been shown to seriously affect the market. A recent example in this case is the 70% decline in 51 days, from a high of $19783 to low of $5947. It was as a result of numerous global changes including more China bans and the USDT printing scandal at Bitfinex. The fact that banks also stalled cryptocurrency credit purchases also contributed to the dip. However, it’s already recovered, regaining ground to just over $8000, partly fueled by the positive tone from the SEC and CFTC Hearing in the US. The direction is to enable a healthy regulatory environment that enables cryptocurrencies to thrive, weeding out the frauds and strengthening the legitimate ones like Bitcoin.

Why you shouldn’t worry about this volatility

Volatility might be a scary concept to both rookie and veteran traders but it is definitely not something worth quitting over. If statistics from the cryptocurrency past are anything to go by, one this is for sure. This is the fact that the values never get stuck in any one direction. This means that even with dips of more than 50% there is still hope for improvement. All you need to do is to understand the market cap and find your perfect market entry and exit points. For this, you also need to also keep your ear to the ground to ensure that you are up to date on all matters that can in any way affect the market. It is also always a great idea to have a safety net. In this case, automatic trading platforms allow you to set cutoff points where your trades are closed or entered automatically in the event of unforeseen changes. In short, all you need to make the most out of this market is:

- Information

- A level head

- Confidence

- A backup plan

Bottom line

With all this in mind, it goes without saying that volatility is actually a good thing for the cryptocurrency market. As a trader, the important thing is to know when to enter your trades and where to cut your wins or losses. This is truly the best way to ensure that you ride the tide in whatever direction to your advantage. With all the information above, you should be in a great position not only to understand the fluctuation but also to predict it and take advantage. So the next time you see that steep red arrow pointing towards a nosedive in the market, do not panic. Simply calm down, do some research and make an informed decision.


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    • Larry Rankin profile image

      Larry Rankin 2 months ago from Oklahoma

      But coin has been quite the drama to watch unfold.

      Interesting read.

    • VationSays profile image

      VationSays 2 months ago

      Hey Mary Norton, smart move. Only invest in what you understand, that way you get to avoid getting burnt.

    • aesta1 profile image

      Mary Norton 2 months ago from Ontario, Canada

      As with new currencies, there are issues as cryptocurrency goes heavily into the market. I still find that I don't have enough knowledge yet so I stay away. However, I keep reading on it.