Why is Crypto so Volatile? Understanding Crypto Market Movements

Predicting the price of cryptocurrencies Bitcoin (BTC) is like shooting an arrow in the dark, even for skilled crypto traders. Because parabolic rallies and 50% plunges are increasingly common in the fast-paced crypto market, timing trades can be notoriously difficult. Cryptopedia does not guarantee the reliability of the Site content and shall not be held liable for any errors, omissions, or inaccuracies. The opinions and views expressed in any Cryptopedia article are solely those of the author(s) and do not reflect the opinions of Gemini or its management. The information provided on the Site is for informational Financial instrument purposes only, and it does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. A qualified professional should be consulted prior to making financial decisions.

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However, even a large crypto exchange like Coinbase is believed to keep about 2% of its coins with Lloyd’s of London. Crypto faces scrutiny for its impact on the environment due to the energy consumption and physical servers needed to support coin mining, digital storage and a high volume of transactions. Although the industry is rapidly trying to lower its emissions, much crypto volatility trading work remains to be done. As crypto becomes more popular and investment firms begin to embrace it, there’s a slow march toward regulation in the space.

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After the hype died down and investors realized the ETF was linked to Bitcoin through futures contracts traded on the commodities market, prices dropped back down to around $50,000. Fear and greed are two primary drivers behind Bitcoin’s volatility and prices. Because of its well-known volatility, investors fear that they will https://www.xcritical.com/ miss out on big upswings or fall victim to large downswings. This causes many of them to panic sell or buy, influencing demand and, therefore, prices. It is unclear how Bitcoin whales—investors with BTC holdings large enough to influence market value—would liquidate their significant positions into fiat currency without affecting Bitcoin’s market price. If the whales were to begin selling their Bitcoin holdings suddenly, prices would plummet as other investors panicked as well.

What time does the crypto market open and close?

To better understand crypto market volatility, get set up with a personal broker today. When acquiring our derivative products you have no entitlement, right or obligation to the underlying financial asset. AxiTrader is not a financial adviser and all services are provided on an execution only basis. Information is of a general nature only and does not consider your financial objectives, needs or personal circumstances. Important legal documents in relation to our products and services are available on our website. You should read and understand these documents before applying for any AxiTrader products or services and obtain independent professional advice as necessary.

Bitcoin’s price remains highly volatile

• This makes sense when traders consider that markets are yet to open in the US after the weekend, and the US is one of the largest crypto trading hubs.
• Covering the future of finance, including macro, bitcoin, ethereum, crypto, and web 3.
• With this type of volatility, price movements occur as investors and traders respond to information and news developments about companies, industries, and the broader macroeconomic sentiment.
• The stablecoin is a new type of cryptocurrency backed by a reserve asset, such as the U.S. dollar or the price of gold.
• Provided, of course, there was no major event to disrupt the price more actively (even so, gold tends to outperform during crises).
• Most observers of cryptocurrency markets will agree that crypto volatility is in a different league altogether.
• The time-weighted average price is yet another method that is possibly causing unusual price movement.

From the hacking of digital transactions to fake currency exchanges and investment websites claiming to sell the currency, crypto theft is up nearly 1,000% year over year. Since volatility increases the odds of unexpected and dramatic price changes, more volatile digital assets have the highest risk profile in the crypto space. But, there are signs that volatility in crypto markets is turning a corner.

In other instances, an exchange may suffer a serious security breach, which may force the company to suspend trading and work on securing user funds. Data from Skew confirms this notion, having found that 10 AM to 11 AM Eastern Standard Time is the most active period on Coinbase, a leading global crypto exchange. However, if traders are interested in cryptocurrency CFDs, the 24/7 rule doesn’t necessarily apply.

Bitcoin, on the other hand, eschews large central intermediaries by design. This makes sense when traders consider that markets are yet to open in the US after the weekend, and the US is one of the largest crypto trading hubs. Generally speaking, the best time to trade crypto is when global market trading activity is the highest.

Those efforts included helping Republican Bernie Moreno, a businessman who has expressed support for cryptocurrencies, defeat Democratic Sen. Sherrod Brown in Ohio. Brown is the chairman of the Senate Banking Committee and is skeptical of cryptocurrencies. Trump avidly courted votes from the crypto industry by promising to usher in a crypto-friendly administration.

Investors and traders assess market conditions and buy or sell assets accordingly, based on how they think the factors at play will affect prices. Bitcoin prices are volatile for many of the same reasons other investments are—supply and demand and how investors react to hype, news, and regulatory actions. The main difference between bitcoin and other investment prices is the magnitude in which its price changes.

Bitcoin’s price fluctuates because it is influenced by supply and demand, investor and user sentiments, government regulations, and media hype. Circuit breakers are interventions by exchanges in order to dampen volatility, caused by panic selling or destructive events internal or external to the stock market. With no training wheels or guard rails in place, crypto’s free market dynamics are susceptible to high volatility. These and other avenues carry some promise to address day-to-day volatility and make cryptocurrencies more viable for everyday use. The Lightning Network and Stablecoins both introduce the scope for large financial intermediaries and dependence on the fiat system that crypto pioneers sought precisely to avoid.

It means the investment’s value isn’t very grounded, which makes its price incredibly sensitive to even slight changes in investors’ expectations or perceptions. It’s rare to view cryptocurrency news and not see an analyst’s, investor’s, or fan’s opinion of how high Bitcoin’s price will get. Unfortunately, how high or low the cryptocurrency’s price will go is unknown.

In the traditional asset trading world, there is what’s known as the volatility index, or VIX. This is a way to define the current volatility, and differentiate healthy volatility from extreme volatility. When a crypto exchange offers leverage, it allows traders to increase their position size––often with borrowed funds. For instance, if a trader has $2,000 in their trading account and the exchange offers 2x leverage, they have $4,000 worth of buying power. This gives a trader quick access to capital and increases your potential gains by 2x, provided the trader is on the right side of the trade. Some DCA traders buy crypto at preset intervals (e.g., once a week), while others only buy when their preferred coin or token drops by a certain percentage to take advantage of discounts.

About 69% of the S&P 500 index’s total return between 1960 and 2022 came from dividends rather than price gains, according to research by Hartford Funds. Put another way, a $10,000 investment in the S&P 500 in 1960 would have been worth more than $4 million by the end of 2022. But without dividend reinvestment and compounding, the same investment would have only been worth about $641,000.