What Is Volatility in Cryptocurrency?
Volatility in cryptocurrency describes the amount by which the trading price of a coin or token varies over time. To put it another way, it indicates the amount of uncertainty of the change of the asset’s value. The higher the range (or spread) of the price, the higher the cryptocurrency’s volatility.
A coin with high volatility has an erratic and unstable price range, while a less volatile currency might maintain a more stable price range over a period of time.
A Deeper Look at This Term
Cryptocurrency volatility plays a crucial role in an investor’s decision-making process. They use this characteristic to analyze risks and determine the possible gains or losses that may occur when purchasing a coin or token.
Many existing cryptocurrencies are very volatile by nature. There are several reasons for this. Firstly, cryptocurrencies are largely unregulated, have no central authority, and possess little to no barrier to entry. Furthermore, the cryptocurrency market is still relatively new and undergoing development daily.
As such, the price of most cryptocurrencies is governed mainly by speculation. As seen in the past, the slightest bad (or good) news can cause a coin’s price to change rapidly. While this feature may be a turn-off for some, it is also what attracts many investors. High volatility and rapidly changing prices make it possible to make significant profits in a relatively short space of time. However, if you are not careful, your portfolio can lose value just as quickly.
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