Explanation of Cryptocurrency Volatility
Cryptocurrency is a market with a lot of potentials. This isn’t a top-of-the-news story. You’re probably aware of both sides of the coin (so to speak): bitcoin has spawned kings as well as peasants. Those winnings and losses aren’t usually the result of picking good coins and bad ones. When talking to two people who both invested in Dogecoin, one lost money, and the other made money. Time is vital when it comes to winning or losing. This is because bitcoin is an incredibly volatile investment; all cryptocurrencies see substantial price fluctuations, which Wall Street refers to as volatility. Cryptocurrency is a high-risk investment. In a single day, Bitcoin’s value plunged by 30%. But why is it the case?
This question brings up a crucial fact about cryptocurrency: it has no intrinsic value. Cryptocurrency’s value is not backed by gold, gems, or anything else. The US Treasury never said, “Yes, any time someone wants to bring us Bitcoin, we will give them X number of dollar bills from our reserves.” Although not all crypto fans would agree, there is a case to be made that the value of crypto is entirely defined by the number of commodities, other cryptocurrencies, or money that people are willing to swap for it.
Let’s dive deeper
Rather than as a currency, some investors are interested in cryptocurrencies as a hedge against inflation or as an investment instrument. However, because crypto has no fundamental worth, its market value is entirely based on speculation, which is nothing more than educated guesswork.
Investing in a speculative asset is a sure way to boost your portfolio’s volatility. It means the investment’s value isn’t well-founded, leaving its price subject to even minor adjustments in investor expectations or viewpoints.
Investing in speculative assets is like taking a hot air balloon ride: the view from the top is nice, but once you realize you’re just suspended by hot air, you’ll wish there was a way to get off without falling. Regrettably, what goes up must often come down in the world of speculation.
For example, Vox has a fascinating graphic on “The Musk Effect,” or the phenomenon of Elon Musk’s tweets had a significant impact on the value of Bitcoin. It’s a good thing you’re concerned about one person’s Twitter account having a substantial effect on the value of your investments. It really should. Putting the value of your assets at the mercy of one person’s whim strikes me as a significant danger.
The question is whether to invest or not to invest.
Before determining whether or not to invest in crypto, you need to figure out if you’re up for a bumpy ride. I recently discussed a day when the value of Bitcoin plunged by 30%. Could you imagine losing 30% of your bank account amount in one day? Cryptocurrency cannot be your cup of tea if just thinking about it causes you to break out in hives.