Volatility In The Cryptomarket, It's Causes And Effects

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Hello friends,

It is your favourite blogger @mato445, and I am here again at your service.

I enjoy my activities in the community so much and I am here to share another interesting topic with you all.

We are all familiar with the nature of the cryptomarket and frequent it flunctuate, many must have wondered why it happens and what that really means.

Well, I am glad to say that u will be discussing extensively on volatility in the cryptomarket, please stay tuned.

VOLATILITY IN THE CRYPTOMARKET

Volatility in the cryptomarket can be understood to be the degree of variation of a cryptocurrency price over a given period of time.

It is also known to be a crucial context of the cryptomarket that gives explanation to the rapid and unpredicted change in price of a cryptocurrency over time.

To a layman, volatility is known to be the rate at which the cryptocurrency price flunctuates.

As we proceed with this topic, we will learn about the causes of volatility in the cryptomarket.

CAUSES OF VOLATILITY IN THE CRYPTOMARKET

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In the cryptomarket, there are several factors that contribute to cryptocurrency volatility, and we shall be discussing a few below.

MARKET SENTIMENT:

One crucial factor that contributes to the volatility of the cryptomarket is what we know to be market sentiment.

The global and decentralize nature of the cryptomarket makes it highly responsive to news and other popular world events.

Any cryptocurrency world positive events or news lead to a rapid increase in the price of a particular cryptocurrency pair and any negative news result in a rapid drop in the cryptomarket.

This high sensitivity of the cryptomarket to external factors greatly affect its movement

SMALL MARKET CAPITALIZATION:

Another factor that contributes greatly to an increased market volatility is it's small market capitalization when compared to traditional assets.

Small market capitalization of a cryptocurrency can be understood to mean that the market price can be greatly affected by little capital inflow and outflow.

This is most evident in low-liquidity altcoins where a single trade with large capital can significant cause a spike in the price of the market.

The cryptocurrency with the most largest market capitalization is also subject to market volatility, although it is lower when compared to an altcoin.

TECHNOLOGICAL ADVANCEMENT:

Another factor that contributes greatly to the volatility of the cryptomarket is the technological cryptocurrency advancement.

Innovations in the likes of changes in the consensus algorithm of a project, software upgrade, security improvement can have a perceived impact on the price of the cryptocurrency it affects.

Also, when a blockchain network becomes vulnerable, it exposes it's digital assets to hacking attempts, and this greatly affects the price of the cryptocurrency in particular.

EFFECT OF VOLATILITY IN THE CRYPTOMARKET

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There are several effects that volatility has on the cryptomarket and we shall be discussing about some of them.

INVESTOR RISK AND REWARD

The volatile nature of the cryptomarket provides both opportunities for investors to make money and risk of loss of money.

This price flunctuation can be leveraged by traders that are seeking a higher returns of their investment in the market.

At the same time, investors are exposed to risk on their Investment as a result of market volatility.

A single market move in the opposite direction can result in great loss of assets for investors.

FINANCIAL SYSTEM INTEGRATION:

The volatility of cryptocurrency has a great impact in its integration into the traditional financial system.

Due to the volatile nature of cryptocurrency, investment funds and financial institution often hesitate to accept it fully as a medium of payment.

And the development of cryptocurrency is greatly delayed by this hesitancy of the traditional financial institution.

CONCLUSION

Volatility is a very important concept in the cryptospace, as it helps to provide several opportunities for investors.

Alongside the opportunities it provides, the volatile nature of the cryptomarket poses some challenges, and will be unveiled in later times