Volatility is defined as the “capacity to shift quickly and unpredictably, especially for the worse.” This word refers to a digital asset while investing in cryptocurrencies. The nominal value of an asset is subject to unpredictability.

Why are cryptocurrency markets so volatile?

Most cryptocurrency investments are made through speculative activities, with experienced traders utilizing market conditions to steer their choices. Other factors, such as exchange hacking, endorsement changes, or technical flaws coming to light, might also affect market volatility. Marketplaces change all the time now that crypto markets allow users to trade 24/7.

Liquidity

Market volatility is directly linked to liquidity. Liquidating an asset in cryptocurrency means converting it back to fiat money. (Fiat refers to a national currency, such as the pound sterling or the US dollar.) However, the markets and exchanges will determine if the liquidity is accessible.

An asset is placed in the order book when a trader decides on a price at which to purchase or sell it. Once another buyer/seller matches the initial trader’s order, the transaction will be executed. The order book will generally be less stacked if liquidity is low. Consequently, when the trading volume declines concurrently, the price of digital assets would be impacted. Since no trader can ever be guaranteed when liquidity will increase or decrease, this will cause an impact on the market volatility.

No regulation and uprising fraud schemes

The lack of significant regulation is due to cryptocurrencies being still in their relative infancy. The market may be easily manipulated through scams and frauds when there is a lack of regulation, which elevates the volatility. A ‘pump-and-dump’ approach that fraudulently raises prices is an example of a practice that causes market instability.

Scammers accomplish this by buying a large number of the chosen tokens and then selling them for a massive profit. Since it was only overinflated and never experienced organic growth, the asset price will thereafter decline. This is only one example of how market manipulation may cause volatility.

Therefore, it’s truly important to find a licensed crypto exchange that can safeguard your digital assets together with your fiat while using it seamlessly. While the crypto field is developing day by day, we have seen authorities throughout the world demonstrate their concern in regulating crypto exchanges by offering public confidence.

 You can be confident that your investments are in good hands with MX. MX is one of four DAXs registered with the Securities Commission Malaysia. As we share the same vision as Binance, we always prioritise the safety of our users. We make every effort to ensure that the services we provide satisfy industry standards. You can start your crypto journey with us for as little as RM10. Start trading today!

Conclusion

When investing in cryptocurrencies, market volatility is an important factor to consider. Do your market research and stay up to date on the latest news before making any decisions. You should react to market developments calmly and with self-discipline, instead of emotionally, which is usually driven by a fear of losing out. Keep an eye out for crypto scams and never spend more than you can afford to lose.