What Is Volatility?
Cryptocurrency Volatility
Volatility is defined as the variation or'swing' in the price of an item over time.
Volatility is a metric that measures how much the price of a given asset has changed over time. This metric is commonly used as a risk indicator, with volatile investments fluctuating in value more quickly and over broader ranges than less volatile investments. This can result in huge percentages of an asset's worth being lost or gained in a short amount of time; this could be problematic if a sale of an item corresponds to a negative price swing, for example. Volatile assets, on the other hand, offer greater growth potential.
Crypto is usually seen as volatile as a newer asset class, with the potential for big upward and downward moves over shorter time periods. Stocks have a wide spectrum of volatility, ranging from the relative stability of large-cap stocks (such as Apple or Berkshire Hathaway) to the frequently unstable "penny stocks." Bonds, on the other hand, are considered to be a lower-volatility asset, with less spectacular upward and downward swings over longer time periods.
Will Cryptocurrency Volatility Ever Reduce?
"Experts think that as Bitcoin expands in size, the price will become less erratic," the media frequently reports when discussing Bitcoin volatility. Is this correct? It's understandable that people could believe that increasing the price by 10% will be considerably more difficult when the price of one coin is $300,000. Is it, however, true?
Until now, the world has lacked an asset comparable to Bitcoin to predict how its price will fluctuate in the future. We can only look at significant firms that are publicly traded on a major stock market. Has there ever been a company that puts a four-year cap on its stock like Bitcoin? No, not that I'm aware of. We're in uncharted ground, to put it that way.
Megacorporation CEOs frequently undertake stock repurchase schemes to reduce the amount of available business stock on the market. They use this in order to manipulate supply and demand and raise prices. This strategy does not always succeed, but it is frequently successful. This shows that limiting new Bitcoin supply might have a four-year influence on supply and demand.
Why is Volatility Important？
Volatility is one of the most important aspects to consider when evaluating investment risk. Historically, investors will take on a high amount of risk if they believe the possible gain outweighs the chance of losing some of their money. (Or their entire investment, as in the example of high-risk hedge-fund manager Bill Hwang's $20 billion fund, which vanished in two days.)
Crypto has undergone a series of high gains and subsequent losses as an asset class that is just a little more than a decade old, and is considered to be more volatile as a category than stocks. However, more institutional engagement and higher trading volumes on Bitcoin (by far the most valuable cryptocurrency by market cap) appear to be reducing its volatility over time. When playing with these assets as a newbie, it's wise to risk quantities you can afford to lose. Cryptocurrencies with lower trading volumes or emerging cryptoassets like DeFi tokens have higher volatility.
To reduce risk, ordinary investors have traditionally been urged to diversify their investments within an asset class. Investing in a basket of equities (or an index fund) rather than a few individual stocks is a popular technique. They may also match investments in more volatile asset classes like equities with investments in less volatile asset classes like bonds to further limit the risk of losing money.
Positive or negative news coverage, as well as earnings results that are better or worse than projected, can all enhance volatility. Volatility is generally accompanied by unusually high surges in trade volume. Low volume (as seen with so-called penny stocks that don't trade on large exchanges or tiny cryptocurrencies) often means excessive volatility.
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