📉What is volatility?

#explainblockchain

📈Volatility is a financial indicator characterizing price volatility.

⚖️The cryptocurrency market is highly volatile. Price dynamics can vary up to several tens of percent. For classical financial instruments, such changes are enormous, but when it comes to crypto, this is a common phenomenon.

📊Why is volatility increasing ?

Usually, volatility increases when some important event occurs that affects the market as a whole or a specific instrument. For example, Elon Musk’s tweet raised the price of a joke token by almost 30%.

🔎Reasons for Cryptocurrency Volatility

All the concerns of the crypto marker participants are that they do not know what to expect from volatility. The quotes of digital assets are very volatile and depend on the emotional component of user behavior, including, and in the absence of regulation, we often encounter concepts such as “panic sell”, “pump” and “dump”.

❗Cryptocurrency Volatility Factors

1️⃣ Lack of government regulation.

The currency of your country receives support and encouragement from the state to one degree or another. As for cryptocurrencies, they are decentralized and are not fully regulated by the financial authorities of states. Such authorities are interested in stabilizing the exchange rate of the national currency, while the cryptocurrency rate fluctuates depending on supply and demand.

2️⃣ There is no binding to some tangible value.

It implies the dependence of the exchange rate on such factors as, for example, the demand for oil, gold and other resources. After all, this is a certain value, and as long as it is stable, the exchange rate will be relatively stable. Cryptocurrencies do not have such values.

3️⃣ Cryptocurrencies have no real value.

For example, the value of a stock is estimated by the market value of the entire company (income, price of goods, etc.) divided by the number of shares. There are no ways to estimate the real value of cryptocurrencies.

4️⃣ The human factor.

Cryptocurrencies have caused a stir in recent years, which has provoked an influx of novice investors and traders to the market. Newcomers in this field often make mistakes, buying and selling assets at the most inopportune moments, and thereby affect the fluctuations of the exchange rate.