Volatility Definition

What is Volatility?

Volatility Definition-Volatility refers to the fluctuating price of an item over a certain period of time. An item may experience certain highs and lows during this period. The greater the difference between the high and low values, the higher the volatility of the item. Changes in price are noted on a daily basis and a yearly standard deviation of these changes is developed. This helps to predict the measure of volatility for that particular item. In the world of cryptocurrency, volatility is a measure of the risk involved in investing in a certain coin.

Volatility Definition with volatile chart graphic

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Volatility Definition in Cryptocurrency

A highly volatile cryptocurrency is labeled as a risky buy, whereas a non-volatile cryptocurrency is less of a risk as its price is more stable and therefore predictable. There are several measures which can help to determine volatility. For example, if a country or financial institution adapts to the idea of a cryptocurrency or invest in it, then the cryptocurrency price is likely to rise. Likewise, the severing of ties could lead to the exact opposite. Here are some of the main reasons for the volatility of cryptocurrency as a whole.

  • Lack of Intrinsic Value:

A cryptocurrency is a form of currency used to buy and sell products and services. It can also be stored in a wallet and held onto as a form of investment. It requires no intermediate to verify a transaction, and all transactions concern only the sender and the receiver. As such, a cryptocurrency lacks intrinsic value. There is no defining factor which specifies a certain value for a coin or guarantees profits. Coins are not physical – they cannot be physically held or created from what is considered a valuable commodity such as gold, silver or oil. Their “value” is determined by a collective hope that someone wants to buy your own coin for more than you paid for it.

  • Lack of Regulation

Each cryptocurrency is independent in its own right. There is a lack of regulatory oversight as the advent of cryptocurrency is recent and rules and regulations are yet to be put in place. There are several people misusing this opportunity. For example, ZCash is a cryptocurrency which cannot be traced and there are several people taking advantage of this. This is one of many such cases and the need for the introduction of some regulatory bodies is apparent. On the other hand, some financial institutions work in collaboration with certain cryptocurrencies and these coins appear to be more stable than others.

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