This year, we can observe that cryptocurrencies tend to move up and down daily by as much as 15% of value. Such price changes are known as variability. But what if … it’s perfectly normal, and drastic changes are one of the characteristics of a cryptocurrency that allows you to make a good profit?
First of all, cryptocurrencies have recently hit the mainstream, so all the news about them and rumors are “hot”. After each statement of government officials about the possible regulation or prohibition of the cryptocurrency market, we observe a huge price movement.
Second, the nature of cryptocurrencies is more like a “stock of value” (as it was in the past for gold) – many investors view them as a reserve option for investing in stocks, physical assets such as gold and fiat (traditional) currencies. The transfer rate also affects the volatility of the cryptocurrency. The fastest transfers take even a few seconds (up to a minute), making them an excellent asset for short-term trading when there is currently no good trend for other types of assets.
What everyone needs to keep in mind is that speed also depends on the life trends of cryptocurrencies. Although in conventional markets trends can last for months or even years – here it happens over even days or hours.
This brings us to the next point – although we are talking about a market worth hundreds of billions of US dollars, it is still a very small amount compared to the daily trading volume compared to the traditional currency market or stocks. Therefore, one investor who makes a 100 million transaction in the stock market will not cause huge price changes, but on the scale of the cryptocurrency market it is an important and notable transaction.
Because cryptocurrencies are digital assets, they are subject to technical and software upgrades of cryptocurrency functions or expansion of blockchain collaboration, making it more attractive to potential investors (e.g., activating SegWit basically doubles the value of bitcoin).
These elements together are the reasons why we observe such huge price changes in cryptocurrencies over hours, days, weeks, etc.
But answering the question from the first paragraph – one of the classic rules of trade – buy cheap, sell high – so every day to have short but strong trends (instead of weak ones that last weeks or months like on stocks) gives a much better chance of getting a decent profit when used properly.