How to Trade Cryptocurrency Volatility | Insights and Strategies for Investors

To trade cryptocurrency volatility involves leveraging the price fluctuations of digital assets to generate profits. Whether you’re a seasoned trader or a novice, understanding the nuances of volatility is essential for navigating the crypto market.

Many people in the cryptocurrency industry have learned the hard way about cryptocurrencies’ incredibly high volatility as a result of the 2018 market crash.

The prices of cryptocurrencies have fluctuated significantly over the past two years, and many people now view the industry as a highly unstable one that is rife with speculation and unpredictability. 

According to market capitalization, Bitcoin, the first and biggest cryptocurrency, grew dramatically in value in 2017 from $700 to approximately $20,000! That represents a startling 27,000% rate of return in just one year.

The fact that so many people adopted cryptocurrencies is not surprising. But as the market reached enormous heights, it quickly proved too unstable, and over the entire year of 2018, there was a massive collapse. 

A distinguishing quality of cryptocurrencies is their high market volatility. The cryptocurrency market is not for the faint of heart due to its volatile price swings, which have the potential to produce both significant gains and devastating losses.

Investors in cryptocurrencies must be flexible and able to adjust to shifting market conditions.

You can learn about numerous risk management techniques used by investors to deal with the market’s volatility and the causes that cause price swings in this article.

What Is Crypto Market Volatility?

The risk that the value of an asset will change quickly is measured by its volatility. The cryptocurrency market is known for its extreme volatility because of how quickly its prices rise and fall.

In the crypto market, not all volatility is created equal. The asset is a key factor. For instance, Bitcoin often has far lower volatility than a brand-new meme coin. In general, an investment is riskier the more volatile the asset. A cryptocurrency that is more volatile than others has the potential to result in greater gains or losses.

The market for cryptocurrencies has experienced considerable volatility because it has only been around for a little over ten years and is still in its infancy when compared to established markets. 

In contrast, the stock market exhibits a wide range of volatility, with established large-cap stocks behaving more predictably than small-cap upstart stocks. For instance, bonds are renowned for having incredibly low volatility, which draws cautious investors who value investment safety over rewards.

The metric used to express market volatility is called beta (). The riskier investment can be determined by comparing the betas of two or more assets.

Here’s an example.

Equity fund managers evaluate a stock’s beta in relation to a benchmark, such as the beta of the S&P 500, an index that tracks the value of the 500 largest U.S. corporations.

Being the first cryptocurrency ever created, BTC is regarded as the standard in the crypto industry.

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Is Volatility Good in the Crypto Market?

Volatility in the crypto market, as with any financial market, has both positive and negative implications. Whether it’s “good” or “bad” often depends on the perspective and goals of the market participant.

In the markets, volatility can signify different things to different people. Everything relies on a person’s risk tolerance. 

High-volatility investments would be avoided by a risk-averse person who is more concerned with stability and wealth preservation. 

Participating in the Bitcoin market is viewed as taking a risk. In fact, between 15 and 34-year-olds make up over 60% of Bitcoin consumers. It’s also noteworthy to see that men account for over 70% of the Bitcoin market.

According to these data, young millennials are more drawn to high-risk investments like cryptocurrencies than their older counterparts. 

A more volatile market results in larger price movements, which may offer greater opportunities to earn a tremendous rate of returns on investments. 

A less volatile market results in smaller price movements, which in turn equates to a lower probability of earning the desired returns.

Here are the pros and cons of volatility in the crypto market:

Pros of Volatility in the Crypto Market:

  1. Opportunities for Profit: Traders can take advantage of price swings to make profits. Buying low and selling high, or vice versa for short sellers, can lead to significant returns, especially in a market as volatile as crypto.
  2. Increased Trading Volume: High volatility often leads to increased trading volume, which can increase liquidity. Higher liquidity means larger trades can occur without significantly impacting the price.
  3. Attracts Attention: The potential for high returns can attract more participants to the market. This can lead to a broader adoption of cryptocurrencies and an increase in the overall market cap.
  4. Innovation and Speculation: Volatility can be an indicator of speculative interest. While this can be risky, speculation can drive innovation in the space, as developers and entrepreneurs look to capitalize on new opportunities.

Cons of Volatility in the Crypto Market:

  1. Increased Risk: High volatility means prices can swing dramatically in short periods. This can lead to significant losses, especially for those using leverage.
  2. Barriers to Adoption: Volatility can make cryptocurrencies less appealing as a means of exchange or a store of value. If the value of a currency can drop dramatically within hours, it becomes challenging to use for everyday transactions or long-term savings.
  3. Emotional Trading: Volatility can drive emotional trading decisions, leading participants to buy or sell irrationally based on fear, greed, or FOMO (fear of missing out).
  4. Reputation Issues: Mainstream media often portrays crypto markets as “wild west” arenas and extreme volatility can reinforce this narrative. This portrayal might deter institutional investors and the general public from getting involved.
  5. Potential for Market Manipulation: In some cases, the volatility can be a result of “whales” (large holders of cryptocurrency) manipulating prices, leading to sudden and unexpected market moves.

Volatility in the crypto market presents both opportunities and challenges. For traders, it offers the potential for high returns, but also significant risks.

For those looking at the broader adoption of cryptocurrency as a technology and a means of exchange, excessive volatility can be a hurdle.

As always, participants should be well-informed and cautious when navigating volatile markets.

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How to Trade Cryptocurrency Volatility on TransferXO

Trading cryptocurrency volatility typically means taking advantage of price swings in the market.

TransferXO is one of the world’s largest cryptocurrency exchanges, making it a popular platform for such trades.

Below are steps and strategies to trade cryptocurrency volatility on TransferXO:

  1. Create a TransferXO Account:
    • Visit the TransferXO website.
    • Sign up using your email address.
    • Complete the KYC (Know Your Customer) verification process if required.
  2. Secure Your Account:
    • Set up two-factor authentication (2FA) for added security.
    • Use a strong, unique password.
    • Be wary of phishing attempts and always ensure you’re on the genuine TransferXO site.
  3. Fund Your Account:
    • Deposit cryptocurrency or fiat (depending on supported options for your country) into your TransferXO account.
  4. Understand the Types of Volatility:
    • Historical Volatility (HV): Refers to past price changes.
    • Implied Volatility (IV): Based on market predictions of future volatility, often derived from options pricing.
  5. Select the Trading Pair:
    • Choose a cryptocurrency pair with high volatility. Commonly traded pairs include BTC/USDT, ETH/USDT, etc.
  6. Use Technical Analysis:
    • Analyze charts and use technical indicators like Moving Averages, Bollinger Bands, RSI, and MACD to gauge volatility and identify potential entry and exit points.
  7. Leverage Volatility with Derivative Products (Advanced):
    • TransferXO offers futures and options contracts, which can magnify gains (but also losses).
    • Consider using ‘TransferXO Fiat‘ if you wish to long (bet the price will rise) or short (bet the price will drop) a cryptocurrency with leverage.
    • Note: Trading with leverage is risky and not recommended for beginners.
  8. Use Stop-Limit Orders:
    • To manage risks, set up stop-limit orders that automatically sell or buy when the price reaches a certain level.
  9. Stay Informed:
    • Keep up with the news, as geopolitical events, regulatory changes, and technological developments can affect cryptocurrency volatility.
    • Use TransferXO’s news section and other reliable crypto news sources.
  10. Regularly Review and Adjust:
  • Volatility can change rapidly, so review your trading strategies and positions regularly.
  1. Practice with a Demo Account:
  • If you’re new to trading, use TransferXO’s demo or paper trading feature to practice without risking real money.
  1. Risk Management:
  • Only invest what you can afford to lose.
  • Consider setting aside profits and rebalancing your portfolio regularly.
  • Diversify your investments; don’t put all your money into one asset or trading pair.
  1. Stay Updated on Fees:
  • TransferXO charges trading fees, which can eat into your profits, especially if you trade frequently. Familiarize yourself with the fee structure.
  1. Withdraw Funds:
  • If you’ve made profits and wish to withdraw, ensure you’re withdrawing to a secure wallet. Remember to account for withdrawal fees.

Remember, trading is risky, and there are no guarantees of profits. Always perform due diligence, continue learning, and consider seeking advice from financial professionals.

Trade Cryptocurrency on TransferXO

How Do We Measure Volatility in Cryptocurrency?

The market has a number of indicators that gauge the volatility of cryptocurrencies. Out of those, there are a sizable number of indicators that just track the volatility of Bitcoin because it is the most popular cryptocurrency and a reliable predictor of the overall market.

Let’s examine the various volatility indicators:

1. BuyBitcoinWorldwide Bitcoin Volatility Index

By calculating the price’s standard deviation, BuyBitcoinWorldWide calculates the volatility for Bitcoin.

The variance of a set of values (in this case, prices) is represented by the standard deviation.

Since Bitcoin’s prices are more widely dispersed, a higher standard deviation indicates that the currency is more erratic.

2. BITVOL Bitcoin Volatility Index

As seen above, analyzes the percentage-based volatility of Bitcoin. There are metrics for measuring the 30-day, 60-day, 120-day, and 252-day volatility of Bitcoin.

3. BITGUR Volatility Index

The top 10 cryptocurrencies by market cap are measured by the Bitgur volatility index. The volatility of other cryptocurrencies is one of the few things this index tracks.

The Bitgur index, unlike the first two, employs a range from 0-100; values closer to 100% indicate higher levels of volatility.

Read this article to get in-depth insight on trading on TransferXO: Can You Trade Crypto All Day on TransferXO?

    Factors Affecting Crypto Market Volatility

    1. Market Sentiment

    Fear and greed are two human emotions that have a significant impact on the markets for risky assets. Bullish trends can be sparked by the good news about a coin as investors predict future gains. 

    Elon Musk is one example of a celebrity who has endorsed a product, and Disney (DIS) and Meta are examples of well-known companies that have done the same.

    On the other hand, unfavorable information about a project or the crypto industry might cause market panic. Investors who are risk-averse may sell their tokens at the first sign of problems, resulting in an increase in market volatility.

    Extreme greed can indicate an overbought market, indicating that a decline in cryptocurrency prices may be next, while extreme fear might indicate an oversold market, indicating that the bottom may be in soon.

    Be aware that the market is unstable and that these instruments may not always be effective. Before making any investment, it is advised to do extensive research, get counsel from a reputable financial advisor, and take into account one’s risk tolerance and financial circumstances.

    2. Supply and Demand

    It’s all about supply and demand in the market. A cryptocurrency token’s price will rise if there is a lot of demand for it. Everyone wants a piece of that cryptocurrency, thus the market will be prepared to pay more for it.

    As a result, the price of a token is more likely to decrease as its supply rises. 

    Due to its built-in tokenomics, planned token releases, the conclusion of the investor vesting period, market selling, and other factors, the token supply may increase.

    News, rules, tokenomics, utility, and other elements are all connected to the dynamics of supply and demand.

    3. Liquidity

    The number of liquid assets that are on the market at any particular time is referred to as liquidity. Because there are many assets available on a highly liquid market, trading is simpler and more affordable.

    Low volatility might result from a highly liquid market since more of the asset is available for trading at the market price.

    On the other hand, when there is less liquidity, the market is more prone to abrupt price changes since relatively minor trades might cause them.

    4. Tokenomics

    The study of the supply, demand, distribution, and valuation of cryptocurrencies is known as tokenomics. It covers everything from a cryptocurrency’s utility to its issuance and burn mechanisms.

    Market volatility is impacted by tokenomics since it has a direct impact on the token supply. For instance, the cost of bitcoin typically increases just before it halved. This is due to the halving of the quantity of bitcoins released with each block, which occurs approximately every four years.

    Bullish trends are stimulated and amplified by the anticipation of reduced supply.

    5. Hype

    It is impossible to ignore the impact of social media and traditional media on cryptocurrency market volatility.

    An example is the meme coin frenzy that developed in 2023 as a result of extensive exposure and promotion. In order to attract new customers, the NFT business is especially dependent on hype and social ties.

    The market is incredibly quick to react and trade in response to any significant piece of cryptocurrency news. As thousands of traders hurry to enter their transactions, this frequently results in significant fluctuations.

    6. Whales

    A cryptocurrency “whale” is a person who owns numerous coins. Their trades could affect the entire market if they possess enough. For all kinds of assets, including BTC, ETH, DOGE, and even NFTs, there exist whales.

    Massive price fluctuations can occur in either direction as a result of a whale purchasing or selling significant quantities of tokens. This is made even more obvious by the blockchain’s transparency.

    Crypto enthusiasts frequently follow whale activity in an effort to forecast both short- and long-term price movements. They might even try to mimic the whale’s transactions while making investments.

    7. Macroeconomics

    Macroeconomic variables including interest rates, inflation, and unemployment are increasingly significant drivers of the cryptocurrency market. Previously, cryptocurrencies existed in isolation and were untouched by conventional market pressures.

    The influence of macroeconomic dynamics is more pronounced as institutional investors and businesses participate more in the cryptocurrency market.

    In order to adjust their portfolios for changes in the world economy, these players do so frequently.

    In the 2022 bear market, as cryptocurrencies increased their correlation with equities markets, we observed this tendency in action.

    As global central banks began raising interest rates to combat increasing inflation, both markets declined.

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    Investment Strategies to Help Protect Your Portfolio Against Crypto Market Volatility

    1. Diversification

    Diversifying your portfolio is a straightforward and efficient risk management tactic. To reduce the chance that a price decline in one token would cause your entire portfolio to lose value, you can diversify your risk among a variety of assets, cryptocurrencies, and stablecoins.

    Every token comes with a set of benefits. The two most popular cryptocurrencies in the world, bitcoin and ether, typically set the pace for crypto market cycles. 

    Stablecoins, on the other hand, provide investors a shelter from volatile market values. MKR and UNI are examples of decentralized finance (DeFi) coins that offer benefits besides money transfers, such as voting power.

    Due to the market’s propensity to move in tandem, use caution when investing a sizable portion of your portfolio in cryptocurrencies.

    2. Stop-Loss Orders

    A stop-loss order is one that causes bitcoin to be automatically sold once it hits a specific price. To guarantee that losses are kept to a minimum in the event that the price of the cryptocurrency drops, traders might employ stop-loss orders.

    The ability to avoid making decisions based on emotion is one of the main advantages of employing stop-loss orders. Instead, traders can set predetermined selling prices based on research to reduce losses and book profits in erratic markets.

    3. Dollar-Cost Averaging (DCA)

    A further straightforward but powerful tactic is to dollar-cost average your cryptocurrency investments, in which you make a set amount of investments at regular intervals to reduce the effects of market volatility over time.

    Long-term investors benefit from dollar-cost averaging since they will keep investing whether the market is bullish or negative. It doesn’t matter whether the price drops or rises in the near or medium term as long as the cryptocurrency investment generates a profit over a protracted period of time.

    Dollar-cost averaging is immune to the negative impacts of emotional judgments, just like stop-loss orders are. It’s crucial to remember that dollar-cost averaging only functions on investments that will increase in value over time. 

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    4. Derivatives

    Hedging frequently involves the use of financial derivative products including options, futures, and perpetual swap contracts. These are tools that let traders speculate without really owning the underlying asset.

    Furthermore, these products’ use of leverage enables traders to expand their exposure beyond their money.

    Here is an illustration of how to hedge using an options contract. Consider that you have 1,000 ETH tokens.

    The macroeconomic and regulatory market dynamics are gloomy, and you worry that the price of ETH will shortly decline. By purchasing put option contracts, you can insure your portfolio against potential losses.

    5. Volatility Indices

    An index that measures market volatility is known as a volatility index. The CBOE Volatility Index (VIX) measures the volatility of the S&P 500 Index in U.S. equities markets. When there is more fear and uncertainty in the market, the VIX index rises.

    By purchasing the VIX index’s options contracts, equity investors can protect themselves against market volatility and benefit from it.

    The Crypto Volatility indicator is the volatility indicator specific to the cryptocurrency market. The index measures the implied 30-day volatility of both BTC and ETH.

    The CVI token, which is correlated to the Crypto Volatility Index, can be used by cryptocurrency investors as a hedge against market turbulence.

    What Causes Volatility In The Cryptocurrency Market?

    1. Infant Market

    An emerging market supported by cutting-edge technology would be considerably more volatile than more established, tried-and-true investments. 

    The cryptocurrency market is currently going through a similar cycle to that of when the internet was a revolutionary back in the 1990s and businesses tied to the internet were making huge rates of return. 

    There is a high chance of failure since there are many things that can go wrong with new technologies because it takes time for them to be perfected and adopted by the general public. 

    Due to the lack of reliable, quantitative data pertaining to the technology’s fundamentals, the market’s perceived value is created by the potential for future disruptions and adoption.

    2. Low Liquidity (Relative To Other Markets)

    The term “liquidity” describes how simple it is to buy or sell an asset on the open market. A very liquid market is one with a high volume of transactions and a thriving number of market participants (buyers and sellers). 

    Unfortunately, because the Bitcoin industry is still very young, it currently has very little liquidity. When compared to the values of other conventional investments like the financial markets, such as trading pairs of many coins, the daily trading volume is insignificant.

    A single huge order can impact the markets and send the price soaring or crashing in an instant, making a low liquidity market—like the cryptocurrency market—easily subject to abrupt and aggressive price movements. 

    This is because there aren’t enough buyers and sellers in the market to act as a cushion against possibly huge orders that could impact the markets. 

    Furthermore, in a situation with little liquidity, market manipulation is very common. The cryptocurrency market has a limited level of liquidity, which encourages wild price volatility.

    3. Unregulated Markets

    Due to the complexity and difficulties of regulating an open-source and decentralized technology, the bitcoin industry is mainly unregulated. Without rules, there would be no oversight, which would attract a lot of bad actors who would manipulate the markets. 

    There have been multiple reports of entities deliberately manipulating the Bitcoin markets on a regular basis. They can range from a planned pump-and-dump plot by a group to bitcoin exchanges manipulating trading volume.

    Since the large orders issued by these companies with the intention of manipulating the market would significantly produce sudden changes in the market, market manipulation makes the general market unstable and highly volatile. 

    Given that the Bitcoin market is easily swayed by news and sentiments, this will cause panic and result in even more turmoil and volatility.

    4. Speculations

    The sole factor influencing cryptocurrency values in an unregulated, young market is speculation. Any asset’s worth often depends on how useful and widely used it is. 

    Currently, there is a lot of speculation because it is very challenging, if not nearly impossible, to quantify the values of any cryptocurrency using standard fundamental analysis. 

    The best method to value any coin or token is to speculate on its potential future applications, adoption, and traction rather than relying on present unquantifiable fundamental indicators.

    Cryptocurrency has frequently been viewed as a hub for speculative activity that causes unpredictability in the market. This produces a setting where there are many serious risks.

    Frequently Asked Questions 

    What time is most volatile to trade crypto?

    According to data from on-chain data provider Skew, 3 – 4 PM UTC is when cryptocurrency trading is most intense.

    How is crypto volatility calculated?

    It is calculated by taking the standard deviation of the logarithmic returns of a crypto over a given time period. Historical volatility is a backward-looking measure that can be used to forecast how much crypto is likely to fluctuate in the future.

    What days are best to trade volatility?

    All in all, Tuesday, Wednesday, and Thursday are the best days for Forex trading due to higher volatility. During the middle of the week, the currency market sees the most trading action. As for the rest of the week, Mondays are static, and Fridays can be unpredictable.

    What causes high volatility in cryptocurrency?

    Crypto market value is primarily affected by how many coins are in circulation and how much people are willing to pay. By design, the cryptocurrency is limited to 21 million coins—the closer the circulating supply gets to this limit, the higher prices are likely to climb.

    Which crypto has low volatility?

    Dogecoin (DOGE), the largest meme cryptocurrency by market value, is currently exhibiting a lower annualized 30-day realized volatility at 30%, compared to Bitcoin’s (BTC) at 35%, according to data from TradingView.


    Any investor or trader should have a solid understanding of volatility before making any kind of investment. 

    The cryptocurrency market is extremely unpredictable and a double-edged sword; while it has the potential to produce enormous rewards, there is also a considerable risk of losing a substantial sum of money. 

    In the end, you must be conscious of your personal risk tolerance in order to determine whether you are ready for the alarming amount of hazards that the market presents.

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