This year we can see that cryptocurrencies tend to rise and fall as much as 15% in value daily. These price changes are known as volatility. But what if… is this totally normal and sudden changes are one of the characteristics of cryptocurrencies that allow you to make good profits?
First of all, cryptocurrencies came into the mainstream very recently, so all the news and rumors about them are “hot”. After every statement by government officials about the possible regulation or ban of the cryptocurrency market, we see huge price movements.
Second, the nature of cryptocurrencies is more like a “store of value” (as gold has been in the past): many investors consider them a safe-haven investment option for stocks, physical assets like gold and (traditional) fiat currencies. Transfer speed also influences cryptocurrency volatility. With the fastest ones, the transfer takes even a couple of seconds (up to a minute), which makes them an excellent asset for short-term trading, if there is currently no good trend in other type of assets.
What everyone should be aware of: This speed is also in line with cryptocurrency lifespan trends. While in regular markets, trends can last for months or even years, here it takes place in even days or hours.
This brings us to the next point: although 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 market of currencies or traditional shares. Therefore, a single investor making 100 million transactions in the stock market will not cause a huge price change, but on the scale of the cryptocurrency market, this is a significant and noticeable transaction.
As cryptocurrencies are digital assets, they are subject to technical and software upgrades to cryptocurrency features or the expansion of blockchain collaboration, making it more attractive to potential investors (such as activation of SegWit basically caused the value of Bitcoin to double).
These elements combined are the reasons why we are seeing such huge price swings in the price of cryptocurrencies in a couple of hours, days, weeks, etc.
But to answer the question in the first paragraph: one of the classic rules of trading is to buy low, sell high; therefore, having short but strong trends every day (instead of weaker ones that last for weeks or months like in stocks) gives much more possibilities. to make a decent profit if used correctly.