Explaining What Volatility Means In The Bitcoin & Cryptocurrency World


Volatility In The Bitcoin & Cryptocurrency World

The name ‘Bitcoin’, I think, needs no introduction now! It has become a new asset class for storing your wealth and a perfect vehicle for the modern world to protect their purchasing power.

More than ever, people around the world are talking about this magical internet money. But just like the saying, there are always two sides of the coin, some are optimistic while others are pessimistic about Bitcoin.

Optimism because people usually prefer to talk highly of things they are invested in, just like the popular saying “Put Your Money Where Your Mouth Is“, which is perfect for the early adopters of Bitcoin.

On the other hand, pessimistic because Bitcoin is very volatile and is a Ponzi scheme where no one will benefit. While I agree it is highly volatile, it doesn’t mean that it is a Ponzi scheme. Anything that trades in a free market without regulations will be highly volatile.

I know some of you may not understand what volatile or volatility means in the crypto space and that is what brings me here today. I will explain what volatility means in the world of cryptocurrencies.

But before that, let me show you an example of free market trading which is always facing huge ups and downs when there is no regulation around it.

Gold Volatility

Above is the gold market compared with the BTC market and it clearly shows the kind of ups and downs the gold market had when it first traded in the free market.

Let’s discuss Volatility.

What Does Volatility Mean?

First things first – volatility is a finance/economics term denoted by symbol σ.

Here is the definition of Volatility:

It is a rate at which the price of a security increase or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease.

Source-ET

The definition looks highly complicated but I will break it down for you! Volatility in the Bitcoin and cryptocurrency world is no different from the finance world.

In the simplest terms, volatility is a mathematical tool or index by which we measure price movements over time for a traded financial instrument or asset. Hence, measuring that price movement over time for Bitcoin and other cryptocurrencies is called volatility in this world too.

For, example

Bitcoin was valued $17,260 at 7 AM in the morning today and it came down to $15,000 in the evening around 6 PM. 

Volatility Index Of Bitcoin From 2010 The huge price changes (as you can see above) measured against time is termed volatility. In other words, many people refer to it as stability and say crypto market including Bitcoin is highly unstable.

But for those people, I have attached a graph of gold volatility in the early 1970s when it was traded in the free markets.

And those who have been into the crypto space for some time now would have understood the reason behind it. It is so because cryptocurrencies, including Bitcoin, cannot be controlled and hence would continue to trade in the free markets.

Free markets – In economics, a free market is an idealized system in which the prices for goods and services are determined by the open market and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority.

-Wiki

That is why I think Bitcoin and other cryptocurrencies will be volatile until it hits its saturation market-cap which no one can safely predict.

Until then, I would suggest if you can’t handle such volatility, do not invest in crypto and Bitcoin. You may see the current volatility here if you wish.

And if you are still interested, start getting accustomed to such volatility for the future and never invest more than what you can afford to lose.

That is all from my side in this article. In upcoming posts, I will share my thoughts and research on what actually gives Bitcoin value.

But for now, I would love to hear your experience in this crazy volatile crypto world.

Also, I would love to know: How are you dealing with this volatility? Do you have any suggestion for the CoinSutra community? Let us know your thoughts and findings in the comments section below!

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