Investing in cryptocurrencies can be a risky endeavor, as digital assets are known for their high volatility. To help investors assess the historical evolution of digital asset prices and discover the most volatile cryptocurrencies of the past 20 days, this article provides a list of tips and tricks. The volatility of each currency is calculated based on its standard deviation over a period of 20 days. Cryptocurrencies are considered to be highly volatile, with the potential for significant upward and downward movements over shorter periods of time.
Stocks, on the other hand, have a wide range of volatility, from the relative stability of large cap stocks to “one-penny” stocks, which are often erratic. Bonds are considered to have lower volatility and generally have less dramatic up-and-down swings that occur over longer periods of time. The increase in Bitcoin trading volumes (by far the largest cryptocurrency by market capitalization) and the increase in institutional participation seem to be reducing its volatility over time. In general, the more volatile an asset is, the riskier an investment is considered and the greater the potential it has to offer higher returns or greater losses over shorter periods of time than comparatively less volatile assets. Cryptocurrencies with lower trading volumes or emerging crypto assets, such as DeFi tokens, tend to have higher volatility.
When experimenting with these assets, it's best to risk amounts that you can afford to lose. Predicting future movements is called “implicit volatility” and, since no one can predict the future, it is a less accurate science (although it is the basis of widely used financial tools, such as the Cboe volatility index, known as the “fear index”). A very low volume (as is the case with so-called one-cent stocks that are not listed in the main markets or in the smallest cryptocurrencies) also usually corresponds to high volatility. When people talk about measuring volatility, they're usually referring to “historical volatility”, a number derived from a study of prices over a specific period of time (often 30 days or a year). To further reduce potential declines, investors can combine investments in more volatile asset classes, such as stocks, with investments in less volatile classes, such as bonds.
You can use a method called beta, which measures the volatility of a stock relative to the general market (the typical reference point is the S&P 500).For some cryptocurrency investors, high volatility is part of the appeal, as it creates the possibility of obtaining high returns. Factors that can increase volatility include positive or negative news coverage and reports of better or worse than expected earnings. To identify and discover the most volatile cryptocurrencies of the past 20 days, investors should consider historical price data and calculate standard deviation over a period of 20 days. They should also take into account factors such as trading volumes and institutional participation when assessing an asset's volatility. Finally, they should remember that predicting future movements is an inexact science and that investing in highly volatile assets carries greater risk. In order to maximize returns while minimizing risk when investing in cryptocurrencies, investors should be aware of which digital assets are most volatile.
By understanding how to measure historical volatility and taking into account factors such as trading volumes and institutional participation when assessing an asset's volatility, investors can make informed decisions about which digital assets to invest in.