What is Crypto Volatility
In traditional financial markets, volatility is the measure of the dispersion of the asset’s price over a period of time. It shows how much a security swings around its mean price. Generally, the higher the volatility, the riskier it is to invest in that asset.
Similarly, volatility in digital assets refers to an asset’s stability over a period of time. However, there is much higher volatility in the overall crypto market than in traditional financial markets. As a result, major cryptocurrencies like Bitcoin and Ethereum have their own volatility indexes. The most popular is the Bitcoin Volatility Index (BVOL) which measures Bitcoin Price fluctuation.
Why is Crypto so Volatile?
The cryptocurrency market is relatively new and smaller in size than other traditional markets, such as the stock market. Therefore, it has smaller liquidity to support the market.
Geopolitical news also has a stronger influence on crypto markets than traditional monetary markets . This is because crypto is a relatively nascent asset that is less understood than fiat; this uncertainty makes its value more susceptible to sentiment.
Governments are still in the early stages of adoption and regulations, so news of a country banning or supporting digital assets can cause a massive price swing.
However, it is also a major reason the crypto market is attractive to some investors who use it as an opportunity for larger returns.