What does volatility mean? 5 reasons why cryptocurrencies & Bitcoin are so volatile

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Volatility refers to the (quick) movements and deviations that an asset like Bitcoin moves on the market. I.e. moving up and down at price. Moving at a quick pace and this is happening with a strong frequency.

And did you know that Bitcoin and other cryptocurrencies are one of the most volatile investment assets by all?

Price fluctuations for any asset is expected. But the quick and strong movements, sometime also the very unexpected price movements can be considered as volatile.

In other markets than the cryptocurrency market volatility is measured through different indexes.

One of these is the VIX (Volatility Index) from CBOE, the Chicago Board Options Exchange. This index measures the movements of the stock market over a 30-day period. You can find other volatility indexes for the stock and other financial markets here.

And Bitcoin also has its own volatility index, the Bitcoin Volatility Index (BVOL). You can check it out here.

The Bitcoin Volatility Index

But the volatility of Bitcoin and the cryptocurrency market in many ways surpasses the volatility of the stock market. And this by tenfolds.

And it to this interesting aspect that I wanted to compile this post.

To explain both what does volatile mean, and specifically for the Bitcoin and crypto market. And additionally, I will also look into and try to provide some clear insight into why the Bitcoin and cryptocurrency market is so volatile.

What does volatility mean?

I explained the meaning behind the terminology volatility above. But to summarise, volatility refers to:

  • The price fluctuation of an asset, or market over a period of time.
  • Being volatile refers to an assets quick, big and/or deviating movements during this period of time
  • The more volatile an asset is the quicker, stronger and with more frequency, its price moves up and down

Sources; https://dictionary.cambridge.org/dictionary/english/volatility, https://www.ecb.europa.eu/press/key/date/2003/html/sp030702.en.html

Why are cryptocurrencies and Bitcoin so volatile?

Bitcoin & crypto volatility
 What does it mean & why is it so volatile?

The more interesting question is, why is Bitcoin so volatile? And will it always be this volatile?

The same goes for the rest of the cryptocurrency market. In fact, many altcoins are often even more volatile than Bitcoin.

Since the birth of Bitcoin it has moved in price from less than a few cents to over $10k today. But in December 2017 it reached the heights of $20k. That means we are today halfway to the all time high of Bitcoin.

I would like to provide my reasoning behind why cryptocurrencies are so volatile here below.

5 reasons why Bitcoin and cryptocurrencies are so volatile

1 ) Bitcoin and cryptocurrencies are very unregulated

The entire cryptocurrency market and all these digital cryptocurrency assets lack any cohesive and universal regulation and classification.

In some countries, Bitcoin and cryptocurrencies are considered currencies, other private money, and mostly elsewhere they are considered to be assets. And thus they are classified, taxed, and valued very differently.

And when it comes to regulation we haven’t come that much further create unified regulations across the EU, globally or even nation to nation.

This means that there is added uncertainty and lack of clarity, which can trigger more volatility.

crypto trading

2 ) Speculation

One of the key growth factors for any asset is speculation.

Speculation basically conceptualises the hope and greed phases that any investor can go through. Here we look at investment opportunities as short and rare.

So when an opportunitity comes along we have to act fast before we miss it. This triggers fast movements and encourages others to follow suit.

And thus increases the fast and big movements of Bitcoin and cryptocurrencies.

3 ) Crypto attracts a younger and more immature audience

It wasn’t long ago that investing in stocks was a rare thing, something done by the few or the people that worked in the stock or financial markets.

It wasn’t like today when stocks are often part of a much bigger group of people overall portfolios. But still, the stock market vs the crypto market has an entirely different age demographic.

The cryptocurrency market is an online beast, attracting people from around the globe with all types of wealths, backgrounds and age spans.

There are lots of young first-time investors that have been drawn to Bitcoin and altcoins. Hoping to find the next big gem. Blinded by greed. And this in return shapes the market and its volatility.

  • Bitcoin and crypto attracts younger generations, learn more here and here

crypto trading after crypto trading confident 3

4 ) The serious crypto hacks scars the market

One of the other big reasons why the Bitcoin market is volatile I think is due to the great number of cryptocurrency hacks. And the staggering amount of funds that have been stolen.

Since the sale and trade of cryptocurrencies is an online and global phenomenon and attracting all types of players to this space.

This has brought unfold plentiful hacks, scams, and thefts that have been plagued the cryptocurrency market. Causing big price drops and movements.

This has a ripple-effect, causing added fear and bigger price movements.

5 ) The cryptocurrency market is still young and emerging

Bitcoin’s been around for about ten years now, but the trade of Bitcoin and other cryptocurrency assets hasn’t really kickstarted in any serious volume until perhaps 3-4 years ago.

And it is still finding its feet and growing day by day. The cryptocurrency market is still an infant when comparing to trading with commodities like gold which has been around for thousands of years and trading globally for the past 50 years.

And the stock market has been around in some form since the 1600s and trading on various stock exchanges since around 1773 (formation of the London Stock Exchange).

Compare those and other markets (forex trading in the 1970s, etc) with the cryptocurrency market and you will soon learn that even though much has happened in ten years. It is in the grand scheme of things nothing.

As Bitcoin matures the price cycles seem to slow down (learn more) and the market matures, with its investors we can expect the price volatility of cryptocurrencies to slow down too.

10 Biggest crypto hacks of all time

Can volatility be a good thing?

The volatile movements of an asset like Bitcoin can scare away most investors. And leaving left with a massive hole in your pocket can ruin anyone. So in many ways volatility can be a risky and harmful part of the cryptocurrency trading world.

But is it only bad? Well it depends on what perspective or angle you are looking at it?

The more volatile an asset is the greater the movements are, and this can be extremely lucrative for the most successful traders.

You can track the movements of BTC or other assets using online tools and then trade when the price is right.

This market is full of day traders and swing traders. All taking advantage of the price movements of Bitcoin and cryptocurrencies. Also often trading with leverage when margin trading.

Not without its big risks, but also as big returns. Attracting all types of investors. Those with much, or little previous investment experience.

This creates not only a good investment opportunity but also added volatility.

Attracting people that are willing to bet on Bitcoin’s price to fall and short it.

Cryptocurrency Vector Illustration
Cryptocurrency design composition with businessman lying on heap of bitcoins and dreaming of riches flat vector illustration

Will this volatility continue for the cryptocurrency market?

I don’t think that the Bitcoin and cryptocurrency market will continue with the same strong volatile movements like in the past.

But I do think that it will remain a highly volatile asset and market. I am speculating that before any real regulation is approved or enforced we will continue to see big gains and drops happen.

And this in many ways is what characterises this market and Bitcoin.

Another interesting index and measure of how the market moves and the current sentiment is the Crypto Fear and Greed Index. Which shows what the current market sentiment feels towards Bitcoin.

The Crypto Fear & Greed Index and how to use it


I hope this guide to volatility helped to clarify what does volatile mean, how Bitcoin’s volatility is affecting the market, and why the cryptocurrency market is so volatile.

If you are new to this market then it is important to learn about what volatility means and how it can affect the market and how well you cope with this when investing in Bitcoin.

If you are new to Bitcoin then we recommend you read this guide before you start investing. It will help you get started in the right way and avoid the common mistakes made by beginners.

We recommend you use a trusted exchange when you buy Bitcoin, and then find yourself a safe wallet. And take your time to learn how the crypto market works before you get too far involved.

Learn from the fact that this market is volatile. If you are curious about day trading then that could be a lucrative thing. But most traders fail. So take that into consideration.

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