What is Volatility?
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Let's find out Volatility meaning, definition in crypto, what is Volatility, and all other detailed facts.
In the world of cryptocurrencies, a coin or token is considered to be volatile if its price movement often changes in volume, frequency, and direction. The most popular cryptocurrencies today such as Bitcoin and Ethereum are considered to be very high in volatility.
In most cases, CBOE Volatility Index (VIX) is used to measure the asset’s level of volatility. However, some cryptocurrencies have their own measures for these fluctuations in price. For example, the Bitcoin Volatility Index (BitVol) or the Ethereum Volatility Index (EthVol).
Why are Cryptocurrencies So Volatile?
There are a few elements that come into play that impact the volatility of the cryptocurrency market:
- Geopolitical situations. When geopolitical issues appear, they usually have a strong global impact. As a result, geopolitical news can affect the crypto trading volumes;
- Regulatory news. Reports and announcements regarding regulations have the ability to directly influence the volatility of any cryptocurrency or the entire crypto market overall. An agency that can provide regulatory news is the U.S. Securities and Exchange Commission (SEC).
Additionally, COVID-19 had a great impact on cryptocurrency markets. Buying and selling cryptocurrencies, especially Bitcoin, grew in 2020. So did the price of these cryptocurrencies. One of the reasons why the pandemic had such a strong effect on the crypto sector is because it appeared a lot more secure than cash.
Another factor driving people to specifically BTC instead of other cryptocurrencies is its hard cap of 21 million BTC. Moreover, Bitcoin and other cryptocurrencies could possibly be a safe haven against rising inflation.