Cryptocurrency volatility - features, causes of fluctuations in the value of digital coins, the highest volatility pairs 2021

When discussing the cryptocurrency market, experienced traders and novice speculators keep an eye on its specific volatility, which can reach 32% or more on a daily basis. Such a range of price fluctuations is the most important factor inherent to stock exchanges. Cryptoassets are traded there.

If compared to Forex or, with the stock markets, the difference will be able to identify even a inexperienced investor. Often on digital currency exchanges, the price rate of bitcoin or other digital coins plummet and soar by 7.16% or more than 30%. This clearly affects traders' earnings.

What is cryptocurrency volatility

Volatility in the financial world is the degree of variability in the price of an individual asset. This can be clearly seen on a chart of virtual currency movements, which shows periods of ups and downs in quotations. By determining the upper and lower limits that the price reaches in a given period, we can ascertain the nature of the asset's volatility.

For example, from September 2 to October 12, 2018, the Bitcoin price was no higher than $7,375. During the same period, the price of the digital coin has never dropped below $6,179. That is, Bitcoin's volatility rate over a 40-day interval reached 17%. In the period from January 8 to January 22, 2021, when BTC price reached $42,000, it was analyzed that the cryptocurrency volatility has already reached 31% during these 2 weeks:

This parameter is usually considered over a relatively long period, as a weekly or daily rate more often reflects the current trend direction rather than sharp price fluctuations.

Savvy traders analyze the volatility of the virtual coin market on monthly charts. Digital money is dependent on a variety of factors and it is harder to predict its movement. It is advisable to make predictions and develop strategies based on the results obtained, using parameters that are calculated for at least the last quarter. A number of traders sometimes pay attention to the historical variability of digital coins, or a measure of price change over an entire period. During this period, the digital coin is traded in the market.

Traders consider expected volatility, or the predicted price behavior of an individual crypto-coin, when developing trading strategies. The following parameters help calculate this indicator:

• current price of the coin;
• Historical volatility indicator;
• market sentiment
• market liquidity of the coin;
• capitalization and pattern of change in popularity of the project, with the chosen coin at its core;
• news reports that directly affect the movement of the coin's value.

Variability determines the value of an asset: some traders find high volatility attractive as an investment, while others prefer "cooler" coins and tokens. It depends on the approach a market participant takes. Traders who prefer long-term investing strategies typically avoid highly volatile assets because wild price swings cast doubt on their investment choices.

In short-term investments, these cryptocurrencies are more popular because they allow them to make money in a relatively short period of time. But in such cases, traders have to constantly monitor changes in the price chart and sell or buy coins in a timely manner. In short-term investing, on the other hand, any change in the direction of the price can be profitable.

Why cryptocurrencies are so volatile

The most important reason the market is volatile is that no one can predict exactly what to expect from cryptocurrencies in the future. News outlets are constantly publishing articles either about the imminent collapse of digital coins or about their prospects to change the existing monetary system beyond recognition.

A small correction can trigger a significant drop in value, as many panicked traders start selling their holdings. It works the other way around as well: you can regularly see a situation where the exchange rate can go up a little bit when there is positive news or even a rumor. Among the other reasons, we can highlight the following:

1. Lack of government regulation. All fiat currencies are supported by government agencies that simply will not allow them to fall or rise in value for no apparent reason. Crypto-currencies are decentralized and not supported by any structure, which causes fluctuations in their value.
2. Not tied to physical value. For example, the exchange rate of many currencies depends on minerals mined in the country, as they constitute a significant part of exports. The fact that virtual coins are not tied to tangible values is dissonant. Some coins do have a tangible value (e.g., the currency Tether, which is tied to the U.S. dollar);
3. There is no real value. While the approximate value of corporate stocks can be calculated from specific performance indicators, there are no such tools, in the case of digital currencies. They exist in a kind of vacuum, their value is changing. for both explainable and not entirely clear reasons;
4. The human factor. The rapid increase in the price of currencies has attracted novice traders, who are constantly making mistakes, thereby also unpredictably affecting changes in the rate;
5. Market manipulation of cryptocurrency. Holders of tokens of less popular cryptocurrencies, can easily cause a collapse in value by putting most of them up for sale.

How cryptocurrency will behave is hard to say, so it's not easy to make regular profits from changes in the rate of crypto-currencies.

Volatility of cryptocurrencies in 2021

The most volatile cryptocurrency pairs of 2021

Top Volatile Cryptocurrencies 2021

See digital coins as assets for short-term trading. Here we can distinguish outsiders and leaders by the degree of volatility. The most promising for speculation on cryptocurrency exchanges are mid-tier altcoins (approximately from 20th to 90th place in the rating), whose price behavior can be roughly predicted. Notwithstanding this circumstance, it is recommended to trade on cryptocurrencies and invest in the top coins. Today these are:

1. Bitcoin is the flagship of the digital currency market. Today, bitcoin's weekly volatility has fallen to 5-7%, but given the cost per VTC, that's enough for solid profits.
2. Litecoin is bitcoin's constant companion, causing its current degree of daily volatility to stay in the corridor of 2.3-4%. Litecoin is characterized by sharp periods of instability with price deviations of up to 45-47%.
3. Bitcoin Cash is the most successful bitcoin hardforward, showing a greater amplitude of price volatility than «parent». Daily fluctuations of bitcoin cash coins are within 9-10%, and over the week the indicator can approach 31-33%
4. Ethereum is the second number of the crypto market by the criterion of demand and popularity. Its volatility is identical to that of bitcoin, though there are bursts of up to 15-17% for a couple of or three days.
5. Dash is a confident regular in the top 15 cryptocurrency rankings. In recent months, Dash has regularly shown daily price swings of up to 15%. Weekly swing at times reaches 25%.
6. Ripple - in the Top 20 is the leader in terms of price volatility. Ripple's virtual currency has a quiet most of the month, but when market activity forms, daily volatility is 17-24%.

Peculiarities of cryptocurrency volatility

As mentioned above, cryptocurrencies are highly volatile. It is better to consider the calculation of the level on a concrete example: at the end of one month, the minimum value of a virtual coin is $100, and the maximum - $200. Thus, the level of volatility will be 50%.

Calculating the volatility of cryptocurrencies is usually done over a more or less long period, such as a month. This is due to the fact that the quotations of digital coins can change dramatically over the course of a day or a week. The calculations of volatility of cryptocurrencies are usually carried out over a long period of time.

Some features of digital currency volatility:

1. The most volatile cryptocurrencies are the least popular ones. Often unknown digital currencies, for unclear reasons, rose in value dozens of times in a small amount of time, and then also quickly depreciated; Bitcoin is the least volatile cryptocurrency.
2. Bitcoin is the least volatile cryptocurrency. Because of its large trading volume and high liquidity, it is much more difficult to influence the value of Bitcoin than altcoins; Bitcoin is the least volatile cryptocurrency.
3. In the future, the volatility of the price of cryptocurrencies can reach the volatility of fiat money.

What does high volatility in cryptocurrencies affect

High volatility hinders the development of cryptocurrency as a financial asset. Large investors are not willing to invest in assets that have daily value fluctuations of up to 20%.

Cryptocurrencies also have limited use in the real economy. Today, it's hard to find a place to buy goods and pay with bitcoin. Stores set their prices in local currency or its value in relation to the dollar.

Cryptocurrencies are not yet involved in international trade. So they are not of interest to large manufacturers in the real economy.

The high volatility of cryptocurrencies only benefits investors and traders. Experienced players can make large profits from trading cryptocurrency compared to other assets. Playing up or down is the most popular way to make money. High volatility increases the volume of trades.

Benefits and drawbacks of high volatility in cryptocurrencies

As mentioned earlier, high volatility in cryptocurrencies is both an advantage and a disadvantage. High volatility is an advantage for traders, who can count on much higher income than in case of trading in traditional currencies, if they take a competent approach to making deals. High volatility is an advantage for traders, who can count on a much higher income than in case of trading in traditional currencies.

Among the disadvantages of high volatility of cryptocurrencies, the following deserve special mention:

1. High risk for investors, which is caused by the fact that sharp fluctuations in token quotations can cause their collapse.
2. Unable to use in business. Because the value of tokens is constantly changing, modern companies refuse to use them as a means of payment.
3. Inability to accurately predict quotes. The high volatility of cryptocurrencies leads to the fact that under the influence of even the smallest factors their quotes can change rapidly. In such a situation it is simply impossible to make prediction about the changes of quotes that will have an acceptable accuracy.

The public's perception of cryptocurrencies with high volatility

This is another difference between conventional fiat money and cryptocurrencies. Society perceives conventional currency as a means of settlement and trusts it.

The central bank is responsible for issuing it, and it maintains the right level of liquidity and makes sure that the currency is relatively stable.

People are used to someone overseeing and controlling the circulation of funds, even if that is fundamentally wrong. People are used to someone overseeing and controlling the circulation of funds, even if it is fundamentally wrong.

Fiat money is accepted everywhere. If we are talking about U.S. dollars or euros, they can be exchanged in any country and already for the local currency to buy goods and services. Classic money can be cashed at any time with the help of banks or ATMs, and thus it is possible to pay even in places where there are no payment terminals in stores.

As for cryptocurrencies and bitcoin, they are not yet as trustworthy. They can't be cashed as easily, and not all stores accept them.

Although many progressive countries have already installed ATMs, some restaurant chains and stores accept cryptoassets. But compared to the global turnover of fiat money, this is still a negligible achievement.

In addition, society is still cautious about cryptocurrencies.

Some people even believe that bitcoin is just another pyramid scheme.

In addition, for most people the principle of appearance of new cryptocurrencies is not clear.

While with fiat money everything is more or less clear - the decision to issue them is made by the central bank, the decentralization inherent in bitcoin and altcoin somewhat scares away the common man.

It was once said rightly that people are afraid of what they don't understand.

Finally, today it is quite common to hear opinions of really iconic figures in the world of economics and finance, who foretell a not very bright future for cryptocurrencies.

This also scares away potential investors.

The caution about bitcoin and other cryptocurrencies is having a significant impact on the industry's liquidity. But so far, it does not boast the same rates as forex or stock exchanges. Accordingly, the volatility of cryptocurrencies will remain quite high in the near future.

How high is the volatility of cryptocurrencies

The exchange rate of any asset, including cryptocurrencies, is rarely stationary.

It is affected by supply and demand from consumers and investors, traders, economic and political situation, information field, emergence of new cryptocurrencies and forks, and other incidents inherent to the crypto-sphere and economy in general.

The above can affect cryptocurrencies both positively and negatively.

Often the positive and negative factors overlap with each other with little time difference and as a result there are fluctuations in the exchange rate. They are fueled by speculation, where players deliberately try to push it up or down.

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