What is Volatility? | CryptoWallet.com

What is Volatility?

Volatility refers to the measure of price fluctuation of a cryptocurrency asset over a given period. Technically, it is defined as “a statistical measure of the dispersion of returns, measured by using the standard deviation or variance between returns from that same security or market index”. 

However, all of this technical jargon simply refers to the stability(or instability) in the prices of assets over a specified time. In further simple terms, a cryptocurrency is said to be volatile if there is frequent, unpredictably large upward and downward movement in the price of that coin.

The historical price movement of a crypto asset can be instrumental to active traders in predicting the future volatility of the coin and its future market price to evaluate any additional risks associated with investing in the asset.

Is high volatility good?

Highly volatile assets are generally considered a riskier investment than relatively moderate volatile coins, and the impact of volatility simply boils down to the type of trader.

For example, a long-term investor or holder of a given cryptocurrency would need to worry less about its volatility than an active trader. Typically, an active trader will need to identify an asset’s 1-day volatility index due to a lower risk tolerance as opposed to looking into more than its 30-day expected volatility to predict future performance.