The cryptocurrency world is the new way of storing your wealth and protection of your purchasing power. Some people believe it to be very beneficial and profit making while some have been burned badly by its volatile nature. Any market whether it is share market or the cryptocurrency market, where trading takes places in the free market without any regulations is bound to be volatile.
What is the meaning of volatility?
As per the economics definition of the word volatility, it means the rate change of the price of a security for a given set of returns. Volatility shows the range of price to which the price of a security may decrease or increase up to.
Thus, the movement of the price of the cryptocurrency over a trade cycle or a definite period is known as volatility.
For example, the value of bitcoin was $8976 at 10 AM and rises to $9532 at 1 PM and again falls to $5643 at 6 PM. this fluctuation of the price is known as the volatility.
Some people also call it instability in the price of the cryptocurrencies.
Reason for Volatility
The main reason for the volatility is that the cryptocurrencies cannot be controlled since they are decentralised and are traded in the free markets without any regulations.
A free market is referred to as the market where the price of the commodity or security is purely determined by the consumers and not affected by the supply and demand of the securities. This is an idealized system where there is no intervention of the government, other authorities and the price-setting monopoly.
Cryptocurrency market including the price of Bitcoins is highly volatile and it will remain volatile until it reaches its saturation market-cap which cannot be predicted safely.
If you are unable to handle the volatility of the crypto market, it is suggested that you do not invest in cryptocurrency. But on the other hand, you can invest and get accustomed to the volatility of the market.
The only thing to be cautious is that only invest which you can afford to lose. Since the crypto market can be both rewarding and detrimental to your financial health because of its high volatility.