This year we can observe 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 totally normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to make a good profit?
First of all, cryptocurrencies made it to the mainstream very recently, so all the news and rumors about them are “hot”. After every statement by government officials about possible regulation or banning of the cryptocurrency market, we observe huge price movements.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold was in the past) – many investors consider these as a backup investment option to stocks , physical assets such as gold and fiat (traditional) currencies. The speed of transfer also has an influence on the volatility of the cryptocurrency. With the fastest ones, the transfer takes even a few seconds (up to a minute), which makes them an excellent asset for short-term trading, if currently there is no good trend in other types of assets.
What everyone should keep in mind – that speed also applies to the life trends of cryptocurrencies. While on regular markets, trends can last months or even years – here it happens in several days or hours.
This brings us to the next point – even if we are talking about a market worth hundreds of billions of US dollars, it is still a very small amount compared to the daily trading volume compared to the traditional currency market or stock. Therefore, a single investor who makes 100 million transactions on the stock exchange will not cause a big price change, but at the scale of the cryptocurrency market it is a significant and noticeable transaction.
Since cryptocurrencies are digital assets, they are subject to technical and software updates of cryptocurrency functions or expansion of blockchain collaboration, which make them more attractive to potential investors (such as the activation of SegWit basically caused the value of Bitcoin to double).
These combined elements are the reasons why we observe such huge price changes in the price of cryptocurrencies in several hours, days, weeks, etc.
But to answer the question from the first paragraph – one of the classic rules of trading is to buy low, sell high – therefore, have short but strong trends every day (instead of weaker ones that last weeks or months like ‘and in stocks) gives much more chances. to make a decent profit if used properly.