The frequent changes in the values of assets available in the market of cryptocurrencies are one of the main reasons why so many people are interested in investing and trading with them in the first place. Most people already heard about Bitcoin, Ethereum, Dogecoin, and many other digital currencies. The reason for such hype in this market is related to prices that are becoming significantly higher each year.
High volatility is one of the main features of cryptocurrencies since the introduction of BTC. The result of that is that the values can go up and down during the day, and in some cases, the difference can be in thousands of dollars, which is the case with Bitcoin.
The key is to learn more about the factors that are affecting the prices and how to take the advantage of them. A great solution would be to use an app where' you can track the most recent analyses of this market and determine the best time for action.
It is crucial to learn more about the technical properties and potential of all assets available since that can help you make the right choice when it comes to investing and trading. Volatility can be a benefit if you are a day trader, but there are some potential downsides as well. We are going to analyze more about the risks of high volatility in the crypto market.
Why Is This Market So Volatile?
It is not complicated to understand the reasons for such a high fluctuation of values when it comes to cryptocurrencies. The simple explanation is that it is still not developed and balanced enough to reach higher stability. Also, the trends related to various assets are changing very fast while their future is uncertain, and that is especially the case with less-known and valuable tokens where' the changes can be even higher than with more stable options like Bitcoin or Ether.
The demand and supply are also important factors. In case that a lot of investors decide to sell certain assets at the same time, it is natural that the price will go down. Also, we have to mention the large investors who can affect the market with their actions. The best example is Elon Musk and his activities in the first half of 2021. He first managed to increase the value of Bitcoin on a new peak price and then lower it significantly.
Moreover, this market is still new, and there is no way to predict which option will become globally implemented in standard financial flows. There is always a risk that some big economies might decide to make these assets illegal, which can affect the values as well.
According to many experts, cryptocurrencies represent the assets for the future since they offer many technical and safety advantages when compared to traditional options. Still, the fact that the market along with most of the assets is still under development, the mining process is active, while there is still a lack of acceptance, are the reasons for the lack of stability and uncertainty related to values in the future.
There Are Other Risks As Well
We already mentioned the possibility that some countries might decide to ban crypto. We can see that China and some other countries have already come up with similar regulations. According to current trends and reports, the chances are low that many big economies will take the same actions, but you should keep in mind that this is a huge factor that can disturb the values.
On the other hand, the risks for traders can be related to regulations where' countries are introducing new laws with high tax rates for profit made with cryptos. The current regulations are treating Bitcoin and other assets like property, and you will have to pay taxes only for the profit made, and the base is calculated according to the date when you bought these assets. Therefore, it is not treated as real money yet.
Moreover, traders must know that security is crucial when they are investing in digital assets. The first thing to do before you decide to invest in some crypto is to find the right online exchange. Keep in mind that you will need to share some private info and open an account where' you will store the crypto before transferring it to your e-wallet.
The e-wallets represent one of the safest options today for saving data, but there are some chances that you could face issues if you don’t pay attention to the proper selection of crypto wallets. It is essential to add different layers of security like complex passwords and 2FA.
Another factor that can affect your profit made by trading in this market is related to the fees introduced by online crypto exchanges. Be sure to always check all the details and compare different options before you decide to open an account on any of these platforms.
The Bottom Line
Even though there are some risks, this market still represents one of the best options today for securing your assets and making a profit over time. According to many experts, the values of popular cryptocurrencies will continue to rise in the future. Still, it is essential to be aware of the risks and learn how to avoid financial issues. The high volatility can damage your portfolio, but only if you don’t follow the changes properly. On the other hand, it can help you increase profit as well, by determining the best moment for buying or selling.
This market is a revolution in the financial sector since it can help people avoid standard options where' the fees are often very high, especially when it comes to international transactions. Also, most of these assets are decentralized, and there is no way for the situation with the global economy to have the same effect on these assets. That is the main reason why cryptos can be a great solution to protect your funds from inflation and other issues.