News reports often mention the volatility of cryptocurrencies, stating that they are the most volatile instruments in trading. In this article, we will examine the concept of volatility and its application to cryptocurrencies.

Volatility in Trading

The foundation of any exchange trading is the constant change in asset price, as it is precisely the difference in rates that allows traders to earn. The value of an instrument can skyrocket and just as sharply fall; the wider the range of fluctuations, the higher the volatility.

Volatility is the range or deviation of an exchange asset's price over a certain period from the base price level or current market direction. Traditionally, volatility is calculated as a percentage of the asset's value itself. Volatility is defined as the difference between the maximum and minimum price over a selected time interval.

Types of Volatility and Its Causes

Volatility, depending on price gaps in the time segment, is divided into:

• low - when the market is absolutely calm, price fluctuations in the selected time interval do not exceed 1-2%, the candlestick chart under such conditions consists of short candles forming an almost horizontal line;
• high - in this situation, the market activates, the number of transactions increases, price jumps can exceed 10%, with long candles on the chart resembling peaks and spikes.

It's worth considering market cyclicality; periods of low volatility can last several months, then this indicator begins to grow. Usually, volatility depends on:

• important news related to the current asset;
• global news - reports from government and private structures, disasters, and politicians' statements;
• "whales" - large players who rock the market with speculative actions to extract profit.

Volatility of Cryptocurrency Assets

Classical volatility fully applies to cryptocurrencies, but this market has its own peculiarities:

• cryptocurrencies have very high volatility, an asset can grow by more than 100% in a day - this is due to the novelty of the market;
• the aforementioned circumstance increases investor risks, however, the potential profit can also be higher;
• the asset price depends on mining methods, the development of blockchain technologies on which the currency is based, and statements from companies and well-known individuals close to the cryptocurrency sphere.