Cryptocurrencies are emerging as the fastest growing industry in the history of the world. Its global market capital touched US$1.84 trillion in 2021, which meant it has already surpassed the value of the global telecommunications market and even the entire U.S. stock market. There are three things that make cryptocurrency particularly advantageous—cryptocurrency’s history, its correlation in movements, and its volatility. Let us understand all three factors.
Cryptocurrency has a unique history that is kind to those who invest in technological innovations before the world realises its true potential. This is particularly advantageous because people are not trading with fiat currencies that are used every day, but rather trading technological protocols that may become the backbone of our future - DYOR and trade wisely.
These are correlated with one another so understanding the market sentiment is important. FX and stocks are less correlated with each other so it is harder to gauge what will move the individual stock or fiat currency. Correlation can be a very hot topic in the crypto world and spurs much debate. Cryptocurrencies tend to be less positively correlated with financial assets, however some are positively correlated with stocks as well as gold. There is also correlation between cryptocurrencies. The prices of cryptocurrencies tend to follow the pattern of the cryptocurrency market, which is often tied to Bitcoin.
Whether it is up or down, volatility creates opportunities to make money. Cryptocurrency has shown to be a very volatile market. Cryptocurrency’s volatility is due to a variety of reasons, including the media, whales, and security. News events about cryptos can cause swings in their value, creating volatility in the market. For example, if a negative article was published about crypto it would scare investors and create panic, causing a lot of volatility in the market. In addition, whales in the market also cause volatility. Since they own a large amount of cryptocurrency, they have the ability to sway the market, causing volatility in the prices. Security also has the ability to cause volatility in the market. Since cryptocurrencies are an open source code, people in the community are able to voice their concerns with the software. A security breach has the ability to cause volatility in the market as well. Volatility doesn’t necessarily mean a bad thing, volatility breeds opportunity.
While there may be other factors driving the popularity of cryptocurrencies, these remain the three key advantages for investors who choose cryptocurrency assets.
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