Will the volatility of cryptocurrencies ever relax to more modest price swings?

The cryptocurrency market has changed drastically in the last year, and it doesn’t seem to be settling down anytime soon. In fact, according to Investopedia, some cryptocurrencies have seen price changes of over 100% in the last week alone!

That’s pretty crazy, and investors are beginning to wonder if we’ll ever see calm, steady growth from this point forward or if we’re doomed to years of wild swings as cryptocurrency stabilizes in the marketplace.

 

What are Cryptocurrencies?

Cryptocurrencies, like Bitcoin, are digital currencies that use encryption methods to secure and regulate peer-to-peer transactions. Bitcoins are decentralized and exist outside of any bank or governmental institution.

Instead, these systems rely on other computers in a network called miners—computers whose owners either volunteer their processing power or who have purchased a mining rig for others to rent—to confirm transactions between people.

Each transaction is recorded in what's called a blockchain, which functions as an electronic ledger. These ledgers aren't stored by any one party; instead, they're spread across multiple mining machines.

This means no single entity can control all users' access to cryptocurrencies—or alter information without permission.

 

How did we get here?

A cryptocurrency is a form of digital money that is created and managed through advanced encryption techniques known as cryptography. Cryptocurrencies use decentralized control, meaning there isn’t any one party that manages them.

There is no government, company, or bank in charge of Bitcoin. The currency is used to purchase items online and offline. And if there was a large supply (such as Bitcoins) with only a small demand, then yes - people might be less likely to use it because they have little incentive (or an insignificant amount).

However, on an individual level, these currencies might be extremely useful for some situations such as when you need anonymity or don't want your money held captive by a third party such as a bank.

 

Why is there so much volatility in this market?

The cryptocurrency market is highly volatile and has been since its inception. One reason for that is that, unlike traditional markets, there are no barriers to entry into cryptocurrency—anyone can easily get in and start investing.

In fact, if you're reading this guide right now, you probably already have at least one cryptocurrency holding. This leads many new investors to jump on board because they assume that if someone else was smart enough to invest in bitcoin or Ethereum early on when it was cheap, then surely I can do so too!

Unfortunately, nothing could be further from the truth. Cryptocurrencies are extremely risky investments and should not be taken lightly by anyone who is looking to make money with them.

In fact, an entire industry has developed around crypto trading bots which essentially allow people to set up algorithms that automatically buy and sell cryptocurrencies depending on certain criteria (like fluctuating prices).

These bots help traders execute trades without having to monitor their holdings manually all day long—but these automated trades also often lead to huge losses due to buying high and selling low (or vice versa).

At any rate, while everyone wants a piece of what's going on with crypto these days, most people don't really understand how it works or what makes it different from other types of investments like stocks or bonds.

 

What kind of people invest in cryptos now?

According to The Motley Fool, as of May 2017, 37% of Bitcoin owners in America held less than $5,000 worth. Another 25% had balances between $5,000 and $10,000. That means 62%—more than two-thirds—of Americans who are invested in cryptocurrency have a total balance under $10K. And only 4% have balances that high or higher.

People aren’t investing thousands upon thousands at a time; they’re trying to make small wins here and there. It seems like most investors are using cryptos for gains similar to day trading stocks.

So will cryptocurrency volatility ever settle down? Probably not... but that doesn't mean it's worthless. In fact, it might be just what we need right now.

 

The future of investing in cryptos

The answer is not yet clear. A number of exchanges have created derivatives that let investors bet on future prices. These are both encouraging and worrisome. While they can be used as hedges against falling prices, they also give investors more incentive to pump up cryptocurrency values in order to lock in their gains (or limit their losses).

There is a general consensus among experts that blockchain technology is here to stay, though it may take a while for it comes into widespread use. As such, we believe there will continue to be opportunities in crypto investing—but with some caveats.

For one thing, many people still don’t understand how cryptos work or why they should care about them. That makes them vulnerable to fraudsters who promise easy riches but instead deliver a pile of worthless coins or tokens.

Another risk: Some people are speculating on Bitcoin futures right now without understanding what they’re getting themselves into—for example, if you think Bitcoin will hit $50K by year-end but buy an option that expires at $30K instead of buying actual Bitcoins at $20K... well, you see where we’re going with this.

 

Conclusion

The short answer is no. Cryptocurrencies are highly speculative, and as a result, their prices will tend to swing wildly. However, there is a lot of opportunity for investors in cryptocurrencies, so long as they do not invest too much in any one cryptocurrency.

A good rule of thumb is only to invest what you can afford to lose; even then, consider spreading your investment over several different cryptocurrencies if possible (or get expert advice on doing so). If you want to play it safe, stick with traditional investments. They may be boring, but at least they're stable!

As an example, let’s consider Bitcoin. While many people were initially eager to hop on board when its value was low, it has been steadily climbing since then.

This is likely due to Bitcoin’s limited supply: There are currently around 16 million Bitcoins available worldwide, and each day new coins enter circulation through mining while others cease to work properly.

Unlike stocks or bonds that can experience crashes because company value drops unexpectedly or because economic conditions deteriorate unexpectedly, increases in demand typically fuel higher values without limit—until something major happens that radically alters the public perception of Bitcoin. When that happens—if it does—the sky’s the limit!