Volatility in cryptocurrencies is the result of price discovery in the speculative asset class. The rise from being completely worthless to finding a valuation when the technology itself is potentially life changing, makes the price swings and sentiment shifts especially powerful.
When Bitcoin price is rising, it is going to the moon, will reach millions some day, and is the greatest invention since the internet. But when things turn down, Bitcoin is regularly declared dead and investors fall into a storm of panic.
Those ebbs and flows are reflected in price charts with massive climbs and falls. And although Bitcoin is notoriously volatile, and things recently have been pushed to the extreme, historically, the volatility in the current Bitcoin cycle is only just picking up.
Bitcoin Adoption Instead Of Forks Leads To Less Volatility Over Time
One of the key differences between Bitcoin and Bitcoin Cash, is just how volatile the two assets are. As Bitcoin becomes more widely adopted, and more liquidity comes into the crypto market, its volatility over time has been diminishing.
BTC is proving itself to be the one true Bitcoin, and Bitcoin Cash, Bitcoin SV, and the other forks are starting to fade into obscurity. That could someday change, but volatility has left these coins still well below former all-time highs.
Bitcoin, however, is now trading at more than three times its former all-time high, showing the positive side of volatility.
What Is Volatility And How To Read It
Volatility, like anything else in markets, comes and goes depending on the trend or lack thereof. When markets aren’t trending and are consolidating in a sideways range, volatility disappears. However, when that happens, it often results in an explosive move to the upside that releases pent up energy, and reignites the rollercoaster ride known as crypto markets.
This lack of volatility immediately shows up on several indicators, such as the Average Directional Index, and the Bollinger Bands. The Bollinger Bands, for example, contract or expand to measure volatility based on a standard deviation of a simple moving average.
When the Bollinger Bands squeeze tightly, it suggests a massive move is coming, but doesn’t tell a trader much about the direction itself. Where the price action is in relation to the middle-SMA matters more related to where the coin heads next.
But these tools aren’t the only way to read volatility, there’s one more tool called historical volatility.
Bitcoin: A History And Reputation Of Volatility
Historical volatility does exactly as it sounds and measures the total volatility across the lifetime of an asset. Looking back across the history of Bitcoin, this recent market cycle has been among the least volatile bull markets ever.
This could also suggest that the bull market hasn’t really started yet, and things could get a lot more interesting for the top cryptocurrency. Note how each prior phase outlined above lasts several months at a time. Bitcoin only recently burst above the resistance line, sending volatility back into high-gear.
Now that it’s back, it is likely to stay for a lot longer and possibly until after the bull market has ended. For now, this is a strong sign that a bear market isn’t quite ready yet. It is also a sign that things will continue to be rocky for the near term.
Trade Characteristic Crypto Volatility With PrimeXBT
Volatility doesn’t always need to have a negative connotation. Without it, there would be no major price swings for traders to make money from. Investments would barely move, and markets would be boring and mundane.
Markets were meant to be fast paced, challenging, and designed to separate the smartest and strong from the emotional and weak. To profit from how powerful the volatility in crypto can be, you need to be armed with the right tools, like the advanced trading tools found at the award-winning margin trading platform PrimeXBT.
Built-in charting tools let traders make a plan, and execute accordingly. Setting stop losses is a breeze, and traders can go long or short Bitcoin and more than 50 other different CFDs across crypto, forex, commodities, and stock indices. Register for a free PrimeXBT trading account today and take full advantage of the upcoming storm of crypto market volatility.