Is Crypto Volatile?

Investor Summary

• Cryptocurrency is less volatile than advertised, especially compared to traditional investments, such as publicly traded stocks.?
• The cryptocurrency market is subject to increased volatility due to factors such as lack of regulation, speculation, limited market size, and technological developments.
• To mitigate the risks of volatility in the cryptocurrency market, it's important to invest in a diversified portfolio of assets and have a long-term view.

Volatility in finance.

While volatility means "fluctuations in the value," people tend to use the term volatility when there large, consistent fluctuations in value. Volatility, small or large, constant or periodic, is not uncommon to any financial asset.

Cryptocurrency is not immune to volatility, and its price can change dramatically quickly. However, the claim that cryptocurrency is volatile is overstated when considering the most popular coins.?

How does crypto volatility compare to stock volatility?

Let's use the timeframe of January 2022 to January 2023 as an example:

• Meta (Facebook) is a global top 15 company by market cap, with 2 billion+ users worldwide.?
• Bitcoin is the leading cryptocurrency by market cap, with more than 250K daily transactions.
• The charts of Meta and Bitcoin are below, both are pretty similar.

Yes, this is only one stock and one coin. Yes, this is only a window in time. But it points to the fact that “crypto is volatile” is a relative statement.?

What are the causes of crypto volatility?

Volatility in the cryptocurrency market can be high compared to more established financial markets, such as the stock market, due to a number of factors, including:

• Lack of regulation: The cryptocurrency market is largely unregulated, and this can lead to increased volatility as there is no central authority to provide stability or to enforce rules and regulations.
• Speculation: Cryptocurrencies are often subject to speculation and market manipulation, which can drive sudden and large fluctuations in their value.
• Technological Developments: The cryptocurrency market is rapidly evolving, and new technologies, such as blockchain and decentralized finance, can have a significant impact on the value of cryptocurrencies.
• Crypto Is Novel: The cryptocurrency market is still relatively new and small compared to traditional financial markets, which can amplify price swings.

How should investors think about crypto volatility?

As an investor, it is important to be aware of the potential for volatility in the cryptocurrency market and to understand that the value of cryptocurrencies can fluctuate rapidly and unpredictably.?

Investing in a diversified portfolio of assets, including both traditional investments and cryptocurrencies, can help to mitigate the risks associated with volatility in the cryptocurrency market.?

Additionally, investing in cryptocurrencies with a long-term view, rather than attempting to time the market, can help to reduce the impact of short-term volatility on your investments.

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