A Guide To Crypto Market Volatility

Due to the digitization of the market, volatility has increased, i.e. changes in the figures related to the market change very quickly and very often. This makes it more dynamic and a little bit complicated too. To keep up with the pace of market volatility, we need to be attentive, updated, and spontaneous.

What is Market-Volatility?

Market volatility refers to the statistical measure of returns that are distributed, for a given security or market index. It depicts the sudden rise and fall of the mean price.

Prices of volatile assets are less predictable hence they are riskier than other non-volatile entities.

Math-related to Market-Volatility?

• Market-Volatility is calculated by standard deviations or means deviations, option pricing models, beta coefficients, etc.
• More volatility means more variations in prices and less volatility means fewer fluctuations in price.
• The volatility index (or VIX) shows how many options (leveraged risk) were moved last time.
• More volatility implies higher risk.

Pros and Cons of Volatility

Pros

• Investors hoping to make more money can use the volatile nature to convert the assets they are holding into much more profitable assets, hence enabling the investor to buy stocks at a lower price.
• It provides entry/exit points to the active traders in long-term investments.
• People can earn money by selling out liquid stocks.
• It helps to maintain the Liquidity of De-fi protocols so that the market could flourish with ease.
• It also helps to cover up the losses within hours.
• Volatile stocks can be potentially profitable in the future as there are chances of a rise in their asset value.

Cons

• It makes the investment lot riskier as the prices keep changing frequently, and therefore, making it difficult to predict the results after investments.
• Unlike manual traders, AMM technologies (which strictly work on algorithms) the exchange of assets becomes non-negotiable. The AMM protocols cannot adopt the changes according to the market dynamics.
• Due to the decentralized nature of the digitized market, there is nobody who is answerable for the fluctuating prices.
• Makes the valuable assets unstable.

Final Thoughts

One must be adaptable to the changes occurring due to technical advancements in the market as well. Volatility is the key factor in digital markets. It can affect the trader and his investment drastically within seconds. However, once you adapt yourself to the volatile nature of the market, you can turn the dynamics in your favor, by catching every little opportunity to make a lot of profit.