The cryptocurrency market is recognized as a real money-making tool. It is used to trade cryptocurrency and to make profits due to the volatility of the market. Volatility is an important issue for corporate financial managers. They know that volatility means greater risk and that higher risk leads to better returns.
So, the effect of cryptocurrencies on the global economy is one that is closely associated with its disruptive power. The lure of higher returns makes it attractive to investors, and this is not strange to economic analysts.
A fact of cryptocurrency markets is the short period of time that traders hold on to them. This effectively means that most buyers buy and sell in the short term for immediate profits. Other market participants may hold on to them for longer periods of time, but the most active traders have short turnovers.
A Look at Crypto Volatility That Drives Cryptocurrency Market
The volatile nature of cryptocurrencies is reflected in price fluctuations, which are largely unpredictable. The value of Bitcoin in 2017 experienced an astronomical increase of 900%, attracting the attention of many people around the world. The rise of Bitcoin became the poster child for the use and popularity of cryptocurrencies. The massive price increase was far too attractive to be ignored.
In 2018, Bitcoin’s value nosedived by 80%, and many investors who had entered for fear of missing something were stunned. The underlying lesson was that the market is subject to change easily. The following reasons were identified:
Lack of liquidity plays a massive role in the volatility of the cryptocurrency market. When a token is traded massively and there are few participants, there is room for manipulation. So if a large order comes into the market, it is likely to have an impact. And in any case, there will be an immediate price spike. Since there are few traders in this sector, price fluctuations will occur more often than usual.
Uncertainty is a situation that does not bring clear results. When there is no clear direction, there is much room for doubt. In the cryptocurrency market, the lack of understanding of the dynamics of the cryptocurrency has so far led governments to drag their feet on signing regulation into law. While many analysts are expressing their opinions about the direction regulation will take, the market is suffering.
When the US SEC decision on Bitcoin ETFs was deemed imminent in the fourth quarter of 2018, the market experienced a revival. However, when doubts arose about a delayed decision, the crypto-winter returned. This is a striking example of the volatility of the crypto-winter. So in a sense, a positive mood somewhere in the world can drive the price of crypto up or down. The market may hit a low throughout the week, only to rally when a report of a positive regulatory announcement comes out.
Fear and Rewards
Fear plays a role in the crypto market. This is somehow explainable. The use of trading signals is largely practiced by crypto traders. This means that a pull effect can occur when reports appear that new investment is made with an existing blockchain. For example, in 2018, when the platform acquired BitTorrent, there was a wild price fluctuation in Tron. This led to a wild scramble for TRX in the crypto market.
The average investor, anxious not to miss the expected rewards associated with a particular cryptocurrency, contributes to price volatility. This easily happens when there is a high demand for a particular brand or coin. However, as can be expected, the hype will subside after a while and a massive drop in price will occur.
The Importance of Volatility
A volatile market offers ample room for profits to be made by traders. Here, crypto-currency offers a lot of rewards for risk-takers. The timing of a trade, therefore, leads to a wild profit or a massive loss, depending on where you stand. Due to this fact, the use of tools and bots became necessary in the cryptocurrency market. By using bots for cryptocurrency trading, a trader can minimize losses and make a profit.
Therefore, if there were no price fluctuations, the use of bots would be unnecessary, as the market would be largely predictable. However, the way crypto trading looks, volatility is key. This has led to massive use of trading bots around the world. Margin trading has become the norm, and some exchanges like Bitmex are thriving from it. Bitmex signals are now popular as a result of the exchange’s margin trading instruments.
What is the Impact of Volatility?
Volatility can also be understood from the perspective of mood swings. Clearly, it can be assumed that the young, mobile, and active men are in the heart of things. According to a Bloomberg survey, young male adults are very much into crypto-currency. The motivation can be explained. The temptation to make quick money is strong in this age group. They are less patient and largely in a hurry. Adding this factor to the others mentioned above, it becomes clearer why crypto-currencies flourish.
Trading in crypto on the global financial market is increasing and there are several players in this sector. The transfer of money, in particular, is driving a huge percentage of activity in this sector. This is also a remarkable use of cryptocurrencies around the world, which dominates the headlines.
As long as the market is volatile, there is money to be made for crypto traders. The risk is there, the rewards are known, and the risk of losses is high.