The term Volatility is used to refer to rapid price movements in the value of any asset, including Bitcoin or any cryptocurrencies. The price of this crypto currency has repeatedly moved upwards and downwards within the day by between 5% & 15%. The volatility of this digital currency is gauged by sampling how far away the price of the coin behaves from where it was from a specific point in time.
People use various factors to explain why the value of this digital currency is volatile like social media and demand & supply. Here is what we can do to make the most of Bitcoin volatility.
You Need to Diversify Your Portfolio
Investing too much in a single cryptocurrency is not a better idea and does not pay. Most of the investors hold different kinds of assets for long-term to diversify their portfolios with various investments. Dispersing your holdings among digital currencies, stocks, shares, and other assets is crucial. Usually do not invest more than 10% of your funds in one sector. Instead, spread out your investment which, on the other hand, does not mean that you are over-exposed since you are not.
When investing in cryptocurrencies, we as an investor must stick to some of the top coins by market capitalization like Bitcoin or Ethereum. In the end, you do not risk being over-exposed should one the decreases in value, mainly due to the market value of this digital asset is highly volatile. You need to decide to diversify your portfolio and something exciting to talk about.
You Need to Be Prepared
Always stay updated & informed with everything regarding the crypto market because you might come across an announcement from a high-profile individual that will tell you about volatility. As a result, you need to plan and take actions to ease your losses should some sudden crash occur.
Do not be a Victim of FOMO (fear of missing out) and FUD (Fear, Uncertainty, and Doubt)
Conjecture about price movements plays an intrinsic part in the value of this digital currency at any given time. Also, most people have come across the term Fear of Missing Out i.e. FOMO. FOMO in the crypto space applies to those investors who are beginners and always want to stay on top of the latest news & trends. Basically, they fall prey to FOMO, allowing their emotions to take over and causing them to buy at the top or make poorly timed trades.
On the other hand, FUD which means fear, uncertainty, and doubt are the opposite and can be equally pernicious to sensible crypto trading. Negative rumours and social media posts by influencers and celebrity about a particular asset or market can negatively affect traders and force them to sell their holdings, which usually leads to a sharp reduction in value.
Bitcoin volatility is at its absolute during FUD and FOMO, and beginner investors tend to lack an understanding of what reason volatility in this digital currency. As a result, one should learn and analyse the markets wisely and remember why they opted to trade this digital currency.
Arbitrage
Arbitrage is the way of purchasing this digital asset at one price and trading it at a premium price on another marketplace. The Bitcoin market is uncontrolled, enable one to start an interchange. Thus to start an income stream, open profiles on marketplaces where you anticipate this digital asset will have drastically different values. When trying arbitrage, dealers need to assume trading costs additionally.
The Bottom Line
The truth is even the most experienced investor can’t predict the future of this digital currency. Trading this digital asset is a high-risk investment due to its volatility.