Why Are Crypto Price Volatile?
The price of cryptocurrency is very volatile, which means the price is uncertain and has the ability to rapidly increase or decrease. It is not uncommon to see huge price swings in the world of cryptocurrency.
The reason the price of crypto is volatile is that it is still a new emerging technology. The price of all assets, including cryptocurrencies, are always changing based on the supply and demand of traders. The market is always trying to find the fair market value. On top of that, you have early adopters, speculators, retail traders, and institutional investors in the mix.
Bitcoin is the least volatile of cryptocurrencies because it is the most mature cryptocurrency. As an asset matures, its price becomes more stable because the market has determined what the price is. Bitcoin is not only a new asset, it is a new asset built on a brand new technology – the blockchain.
The most volatile blockchain assets today are altcoins. Some altcoins can swing 50-100% in a single day. One factor in these huge swings is the available liquidity (ability to trade crypto into cash) and the small market size. Cryptos with smaller market sizes have more volatility because the price is impacted by larger buy and sell orders.
Even Bitcoin, which has the largest market cap, is not immune to the price being affected by large buy or sell orders. In more liquid markets like the S&P 500, a big fish can buy or sell very large amounts of an asset. When big fish place buys or sell orders for Bitcoin, it can have a larger outsized effect on the price.
As time goes on, the main cryptocurrencies like Bitcoin and Ethereum will become less and less volatile, especially are more derivative and futures markets open up. Smaller altcoins will always remain volatile, just like penny stocks. The upside to volatility is that the price can rapidly increase, just as easily as it can rapidly decrease.