A cryptocurrency is a digital currency intended to function as a means of exchange. It uses cryptography to basically control the creation of new units of a particular digital currency and to secure and verify transactions. Blockchain technology, a distributed ledger enforced by a distributed network of computers, is the foundation upon which many cryptocurrencies are built such as ALGO USDT or KCS USDT. Cryptocurrency, a relatively new asset class, is widely regarded as volatile, with the potential for significant ups and downs over shorter periods. From the relatively stable large-cap stocks like Apple and Berkshire Hathaway to the frequently erratic “penny stocks,” stocks are thought to be highly volatile.
On the other hand, bonds are regarded as an asset with lower volatility because they typically experience less abrupt upward and downward swings over longer time frames. Because it established itself as a prominent one-stop shop for all crypto operations, KuCoin is a well-known name in the crypto industry. The exchange, which debuted in August 2017, now supports more than 400 markets and more than 200 cryptocurrencies, making it one of the most vibrant crypto hubs on the internet.
How Does Volatility Work?
The degree to which an asset’s price has fluctuated over time is known as volatility. A more volatile asset is considered riskier as an investment because it has a greater potential to offer either higher returns or losses over shorter periods than similarly volatile assets.
How Does Volatility Get Counted?
The term “historical volatility,” which is a number derived from a study of prices over a specific period (typically 30 days or a year), is frequently used when discussing the measurement of volatility. Although it is the foundation for widely used financial tools like the Cboe Volatility Index, also known as the “fear index,” which predicts the stock market’s volatility over the next thirty days, the prediction of future movements is referred to as “implied volatility.” Since nobody can predict the future, this is a less precise science. There are two ways to quantify volatility:
- Using the beta method, you can measure a stock’s volatility about the market as a whole, which typically uses the S&P 500 as its benchmark.
- The standard deviation of an asset can be computed as a measure of how far its price has deviated from its historical average.
Why Is It Important To Comprehend Volatility?
One of the primary considerations when assessing investment risk is volatility. In the past, investors have been known to take on a lot of risks if they think the potential reward is worth the chance of losing some of their investment. Or all of their investments, as was the case recently with high-risk hedge fund manager Bill Hwang, whose $20 billion fund disappeared in two days.)
Crypto is considered more volatile than stocks as a category because it is only a little more than a decade old as an asset class. It has experienced a series of sharp rises and subsequent falls. However, Bitcoin’s volatility appears to decrease over time thanks to increased institutional participation and trading volumes.
Positive or negative news coverage and earnings reports that are better or worse than expected can contribute to volatility. Volatility typically coincides with spikes in trading volume that are unusually high. As with smaller cryptocurrencies and so-called “penny stocks” that do not trade on major markets, high volatility typically follows very low volume.
Is There A Way To Lessen The Volatility Of Crypto?
The possibility of high returns makes high volatility appealing to some crypto investors. (Additionally, even though Bitcoin’s volatility appears to be decreasing, it frequently fluctuates by double-digit percentages in a single week, making it possible for “buying the dip” strategies.)
Dollar-cost averaging is one strategy that can be used to mitigate the negative effects of volatility for investors who are less tolerant of risk. Short-term volatility usually doesn’t matter as much to investors with longer-term strategies who have good reasons to believe investment will eventually rise over time.)Additionally, stablecoins—such as USD Coin and Dai—are currently available as cryptocurrencies whose prices are based on a reserve asset like the United States dollar. These cryptocurrencies are made to have low volatility.