This year we can see that cryptocurrencies tend to move up and down even by 15% of the value on a daily basis. 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 only recently reached the mainstream, which is why all the news and rumors about them are “hot”. After each statement of government officials for possible regulation or ban on the cryptocurrency market, we see huge price movements.
Second, the nature of cryptocurrencies is more like “storage of value” (as gold has been in the past) – many investors see them as a reserve investment option for stocks, physical assets such as gold and fiat (traditional) currencies. The speed of transfer also affects the volatility of cryptocurrency. For the fastest, the transfer takes even just a few seconds (up to a minute), which makes 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 the life expectancy trends 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 a very small amount compared to the daily trading volume compared to the traditional foreign exchange market or stocks. Therefore, an investor making 100 million transactions in the stock market will not cause 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 of cryptocurrency functions or expanded blockchain cooperation, making it more attractive to potential investors (activating SegWit has doubled the value of bitcoin).
These elements together are the reasons why we see such huge changes in the prices of cryptocurrencies in a few hours, days, weeks, etc.
But the answer to the question in the first paragraph – one of the classic rules of trade is to buy cheap, to sell high – therefore the presence of short but strong trends every day (instead of weaker, lasting weeks or months, as in stocks) gives a lot more chances to make a decent profit if used properly.