Finances

3 Reasons Why is Cryptocurrency Market So Volatile

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Written by Quentin Hack

You probably know that investing in cryptocurrencies is one of the most popular ways to earn money today. This digital money or digital gold, as many call it today, has experienced a real expansion in the last 10 years. If you are not very familiar with this topic, it is time to do so now.

What are cryptocurrencies?

Cryptocurrencies are digital or virtual money that has existed since 2008. The first cryptocurrency created was Bitcoin. Although thousands of others were created after it, this cryptocurrency is still a favorite among many traders, and it is supported by its value, which is almost constantly growing. Of course, we should not neglect other currencies that can also bring you extraordinary earnings. In any case, what makes this digital money different from fiat currencies is the fact that it is decentralized, that is, that there is no central authority.

In addition, it is very secure for use and transaction because it is based on the principle of blockchain. This means that the transaction does not require a third party and that cryptocurrencies are impossible to counterfeit and unlike fiat currencies that the Government and banks print almost daily, with cryptocurrencies it is impossible – there are a number of cryptocurrencies and that’s it, there is no possibility “adding” new ones. To find out more about Bitcoin and how to start with investing, you can visit this site.

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How to start cryptocurrency trading?

Before you start making and investing in virtual money, you need to know that you have two options – trading and mining. It is up to you to choose the option that suits you best. In any case, experienced people recommend that, when it comes to a beginner, it is better to invest in several different cryptocurrencies, because, given their volatility, instability, in case the value of a particular cryptocurrency falls, you do not lose all invested money.

Cryptocurrencies are stored in a special digital wallet. The main division is into a hot and cold wallet, and it is up to you to choose which one suits you best. What we can say is that a hot wallet is more affordable, you can even access it via a mobile phone if you have an internet connection, but a cold, hardware wallet is much more expensive and secure. Now that you have solved this problem, you can go to the exchange office or ATM and buy your first crypto money.

The next step is to search for a platform. You will find many platforms for cryptocurrency trading on the Internet, and it is up to you to choose the one through which you will engage in trading, according to your criteria. If mining is your choice, we recommend that you join a mining pool and thus increase your chances of winning. You can learn more about it on thebitqtapp.com/de/login.

Cryptocurrency trading

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Cryptocurrency trading is becoming increasingly popular, but any investment of money is risky. Cryptocurrency trading depends on several factors, the first of which is the size of the cryptocurrency in which you plan to invest. A large number of investors prefer to invest in already known cryptocurrencies, although this does not necessarily mean security.

Some cryptocurrencies initially have low profits and therefore low prices, but that does not mean that they will remain so in the future. The second criterion is the development of cryptocurrencies which means that the cryptocurrency will become attractive for investment if it is estimated that in the near future the price could rise.

What are the risks associated with cryptocurrencies?

  • Mostly unregulated area, as a result of which the possibility of fraud and others is more frequent irregularities
  • Lack of reliable and relevant information
  • High risk of losing part or all of the invested funds
  • Distinct volatility of investment values ​​and impossibility of “exit” from investments
  • Risks related to the information technology used for the creation and distribution of tokens (for example, hacker attacks, inability to access tokens, key loss for access to the so-called digital wallet)

We see that volatility is one of the main risk factors for investing in cryptocurrencies. Why? This problem is a major concern for people looking to invest in virtual currencies because will at some point that person wants to change their virtual currencies for real money. Volatility is used in economic-financial terminology to denote some instability. Volatility is a measure of an unpredictable change in a variable over a period of time.

This is the range and speed of stock market movements. It is one of the indicators of risk: the higher the volatility, the higher the risk. It is of particular importance during periods of economic turmoil, which is usually a period when uncertainty among investors can encourage volatility, which directly affects the ‘rapid’ changes in stock market prices. Some assets are more volatile than others. Volatility is measured using a standard deviation, which measures the deviation of an asset from the average.

Why is the cryptocurrency market volatile?

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There are several factors that affect the volatility of cryptocurrencies, and these are some of the most important:

“Market immaturity”

The cryptocurrency market is always young and insufficiently researched, which is one of the main causes of its instability.

Liquidity

The term liquidity can often be heard in conversations in the financial markets and refers to the very stability of the market. In other words, the higher the liquidity, the more stable the market, and vice versa. High liquidity makes the crypt more stable and more resistant to sharp price fluctuations – a large number of orders neutralize the impact of large transactions on its price. Cryptocurrency liquidity measures how quickly a coin can be converted into fiat or another digital currency.

Market irregularities

Given that this money is not readily accepted in every country and that trading is illegal, many give up investing in cryptocurrencies which further affects the instability of this market.

In any case, opinions about investing in cryptocurrencies are divided, and it is up to you as an individual to decide whether you are willing to take this step or not. However, one thing you know – without risk there is no success.

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Quentin Hack

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