Highs and Lows: The Crypto Market



Sep 28, 2021


The crypto market is the most notoriously volatile market of the 21st century. The crypto market is a nascent asset class and is still in the price discovery phase.

Now, let’s take a deeper look into the term ‘volatility’ and how it features in the crypto market:

So what does volatility mean? ‘Volatility’ in the crypto market can be described as the rate at which the price of a crypto increases or decreases for a given set of returns. In simple terms, volatility means how likely there is to be a large change in the price of a specific crypto or the crypto market as a whole. Volatility is often measured by dramatic climbs in prices followed swiftly by dramatic drops.

IE. If the price of a crypto fluctuates rapidly over a short period of time, it is said to have high volatility. If the price of a crypto fluctuates slowly over a long period of time, it is sad to have low volatility.
Volatility is important because it is used as a measure of risk. Traditionally, investments with a low volatility are seen as ‘safer’ and more likely to achieve positive results, whereas an investment with a high volatility usually indicates ‘danger’ and is more likely to have negative results. In the crypto markets, however, many traders see volatility as an opportunity as it can allow them to realize large returns over a short period of time. It is important to note that this is not always the case, traders can also experience large losses over a short period of time.

There are volatility indexes that measure volatility of some of the larger cryptos, the most important being the Bitcoin Volatility Index (BVOL).

Why is crypto often considered a volatile market?
The crypto market is considered to be volatile for a number of reasons including its emerging market status, the limited level of regulation, its digital nature, speculation and the media. Because of these reasons cryptocurrencies will naturally be far more volatile than most other asset classes. 

Emerging market status - The cryptocurrency world is still relatively young (12 years old) and its market cap is still small when compared to other asset classes. This means that smaller forces (large buyers/sellers)  can have much larger effects on the price of a crypto.

Digital nature - Most cryptocurrencies, with the exception of stablecoins, are purely digital and are not backed by any physical asset. Which means that their prices are ruled by the laws of supply and demand.

Speculation and the media - One of the largest contributors to volatility in the crypto market is speculation and the media. Speculation occurs when investors bet on whether the price of a crypto will go up or down by buying and selling. The media further contributes to speculation as investors are constantly watching the news headlines for a story that may trigger the next bull or bear run.

The high level of volatility associated with the crypto market has proven to attract many investors because of the large price swings that often occur in short periods of time. A cryptocurrency could go from being extremely bullish, breaking All Time Highs to falling back to yearly lows in a matter of days. It is, however, expected that over time, the volatility in the crypto markets will decrease as the market expands and as more regulation is slowly introduced.

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Remember, proper diligence and sound judgement should be used in evaluating the risks associated with these activities. Trading cryptocurrency carries significant risk and losses can exceed deposits. Refer to our Terms and Conditions and disclosure material.