Understand why the cryptocurrency market is so volatile!
Volatility measures how strongly and how quickly the value of a crypto-asset can fluctuate. These movements bring risks—but also opportunities. Learn how to analyse volatility to make better investment decisions and stay ahead of the market.
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Volatility is a metric that indicates how much the price of a financial product, such as stocks or cryptocurrency, can fluctuate over a certain period. In simple terms, volatility tells you how much—and how quickly—the price of a given asset can change. The higher the volatility, the greater the price swings. For investors, high volatility means more risk, but also more opportunities to profit (or to incur losses).
Cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), are known for their extreme price movements. The crypto market is still relatively young, less regulated and often highly influenced by speculation. As a result, we see much larger price swings than in traditional markets—such as stocks or bonds.
Volatility can be calculated in several ways, but one popular method is using the standard deviation of daily returns. Simply put, we look at how the crypto price changes day-to-day, and how large those daily changes are relative to each other.
Here is a simplified version of how we compute the volatility of crypto:
There are several reasons:
The volatility of cryptocurrencies can fluctuate between 20% and 80%. This is relatively normal for the crypto market, where volatility is often extremely high compared to traditional markets.
In traditional markets—such as stocks—volatility of 20% is already considered very high. But in the crypto market, volatility of 50% or more is not unusual—especially during periods of major price movements, such as a bull run or a market crash.
High volatility means that an asset’s value swings dramatically and often. This may indicate an unstable market in which prices rise and fall rapidly, causing uncertainty. Low volatility, on the other hand, means that value remains relatively stable, with few price fluctuations.
High volatility can be an indication of uncertainty or fear in the market, which is often viewed as bearish. This means investors are cautious because the value may suddenly drop. Low volatility often points to more stable market conditions, which can be neutral to bullish. A stable market gives investors more confidence that no unexpected large price movements will occur.
Extremely low: < 20%
Low: 20 – 40%
Average: 40 – 60%
High: 60 – 80%
Extremely high: > 80%