Steemit Crypto Academy Contest / S14W2 - Volatility in cryptocurrencies

Edited using Pixellab App

INTRODUCTION

There is one particular toy every loves to play on in a game park, the Roller Coaster. A roller coaster goes up and down with twists and turns, keeping everyone on the edge of their seats, some happy, while some scared. Well, the world of finance and investments has such a roller coaster and it's called "volatility". So buckle up your seat belts as we go into the details of this roller coaster.

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In your own words, how does volatility affect cryptocurrencies? Is it beneficial or detrimental.

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In its literal meaning, Volatility is the tendency for something to change rapidly. It's like when something is very unstable and can go up and down, in other words, "fluctuate" a lot. It is about those unexpected twists and turns, hence volatility refers to how much something can change in a short period.

Relating it to cryptocurrency, volatility is all about the quick and unstable changes in the price of a cryptocurrency such as Steem, Bitcoin, Ethereum, Litecoin, etc.

Edited using Pixellab App

Cryptocurrency markets are well known for their high volatility, that is, the value of assets goes up and down dramatically in a short period. However, this rapid up-and-down movement in price (Volatility) is influenced by factors such as;

Demand and Supply:

As we've come to learn in basic economics laws demand and supply will always impact the price of a commodity, therefore, it applies to cryptocurrencies too. The demand for a particular asset can impact its price greatly because when there is an increase in demand, the price tends to go up. Likewise, when there is a decrease in demand the price drops.

Investor's Sentiment:

This is a driving factor to investors' demands, it is the emotions and perceptions of cryptocurrency investors. Therefore, it can have a substantial impact on market volatility as positive news or developments can create a sense of optimism, leading to an increase in demand, leading to price spikes. Whereas, negative news or regulatory concerns can trigger fear and selling, resulting in prices diving.

Regulatory News:

From the previous factor, we can see how news can affect market sentiment, which in turn affects demand and price. This shows that government regulations and policies regarding cryptocurrencies can seriously affect the value of a cryptocurrency as news of new regulations or restrictions can create uncertainty leading to volatility in the market. Let's say, a country bans or restricts the use of cryptocurrencies, this can lead to a significant drop in price and vice versa.

Technological Advancements:

Technological developments such as upgrades, innovations, and security advancements of a cryptocurrency can also influence market volatility as all this can lead to price fluctuations.

Market Manipulation:

Unfortunately, the cryptocurrency market is not free from manipulation as large investors and groups can influence asset prices by buying or selling large amounts of the asset, this in turn causes panic among smaller investors leading to rapid price movements and increasing the asset volatility.

Global Economic Factors:

The Cryptocurrency market is also affected by economic factors such as inflation, interest rates, and geopolitical events causing instability or uncertainty that can push investors towards digital assets as an alternative investment, leading to increased volatility.

But then, how does the volatile nature of the crypto market affect cryptocurrencies? Volatility impacts the cryptocurrency market in various ways such as;

Providing Trading Opportunities:

Volatility in the cryptocurrency market creates trading opportunities for investors as investors look to make profits from these price fluctuations by buying low and selling high. Hence, traders who can anticipate the volatility of a cryptocurrency take advantage and capitalize on these price movements.

Increased Risk:

Volatility also increases the risk associated with investing in cryptocurrencies as the unpredictable price swings can lead to considerable losses if investments are not carefully managed.

Investor Sentiment:

Volatility also has the power to impact investors' sentiment and confidence in the cryptocurrency market as sharp price drops can create panic selling, while substantial price increments can attract more investors which in turn leads to further amplifying the volatility, as investor actions can drive prices even higher or lower.

Market Liquidity:

Volatility can affect the liquidity of the cryptocurrency because, periods of high volatility, may lead to increased trading volume and liquidity, as more investors enter the market to take advantage of price movements.

Regulatory Scrutiny:

The volatility in the cryptocurrency market can attract regulatory attention from governments and financial institutions to implement stricter regulations due to concerns about market stability and to protect investors.

Is volatility in cryptocurrency beneficial or detrimental?

Beneficial Aspects of Volatility

Provides Profit Potential:

Volatility in cryptocurrencies creates prospects for traders and investors alike to make profits by buying low and selling high by taking advantage of the volatility.

Market Growth:

Cryptocurrencies have gained popularity partly because of their volatile nature. The potential for significant price swings attracts more investors, which leads to increased market liquidity and growth.

Innovation and Development:

The dynamic nature of the cryptocurrency market, driven by volatility, encourages innovation and the development of new technologies. It pushes companies to find creative solutions and improve the overall cryptocurrency ecosystem.

Detrimental Aspects of Volatility

Risky Business:

Volatility brings risks to trading as the rapid price fluctuations can lead to substantial losses if one is not careful, therefore, it is important to manage our investments wisely and have a solid risk management strategy in place.

Investor Uncertainty:

High volatility can be discouraging for investors, as they hesitate to enter the market with the fear of losing their investment while also discouraging others from participating in the cryptocurrency space.

Regulatory Concerns:

Volatility may lead to governments and financial institutions implementing stricter regulations to increase market stability and protect investors hoping these regulations provide a safer environment, in turn, it may also limit the cryptocurrency market.

Hence, whether volatility is useful or harmful relies on the investor's point of view as some investors make a lot of profit when prices go up and down quickly by buying low and selling high, so it's good for them whereas, others lose their investment when prices go down, so it's bad for them.

However, it would be better if the price of a cryptocurrency grew steadily as this would cause people to trust it more bringing more people to invest in it.

In conclusion, trading cryptocurrencies can be risky, especially when the prices keep changing a lot. Hence, it's important to be careful, study the market, manage risks, and stay up-to-date with the latest happenings to help increase our chances of making informed decisions and minimizing potential losses.

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Name and describe a technical indicator that measures the market volatility of an asset.

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Technical indicators are tools that assist investors and traders alike in analyzing market volatility. However, it's important to use them in conjunction with other technical analysis tools and consider the overall market conditions. There are several technical indicators that traders often use, they include the likes of;

• Bollinger Bands
• Average True Range (ATR)
• Volatility Index (VIX)
• Relative Volatility Index (RVI)

Bollinger Bands:

Bollinger Bands consists of three lines (one above, one in the middle, and one believe) plotted on a price chart. The middle line is the moving average, while the upper and lower lines or bands are calculated based on standard deviations. When the three lines or bands are closely packed (narrow), it suggests low volatility, while when they widen, it indicates higher volatility.

Average True Range (ATR):

The ATR measures the average range between the highest and lowest prices of an asset over a specific period. ATR indicates the asset's volatility by evaluating price gaps and intraday price movements. The higher the ATR values the greater the volatility, while lower ATR values indicate low volatility.

Volatility Index (VIX):

The VIX often referred to as the "fear gauge" is a measure of the expected volatility of an asset. The VIX uses alternative prices to calculate market sentiment and investors' anticipations. Hence, when the VIX is high, it indicates higher anticipated volatility and vice versa.

Relative Volatility Index (RVI):

The RVI is a technical analysis tool that compares the closing prices of assets to their price range over a specific period. It is usually used to identify overbought or oversold conditions which can also be used to measure volatility shifts.

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Describe the step-by-step to be able to include this indicator in the STEEM/USDT chart. You can use the Tradingview platform. Show screenshots.

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Here's a step-by-step guide to including these indicators in the STEEM/USDT chart on the Tradingview platform, I will be applying the Average True Range (ATR) indicator.

Step 1: Open the Tradingview platform on your preferred device and search for the STEEM/USDT trading pair in the search bar at the top of the screen.

Step 2: Once you have the chart displayed, locate the "Indicators" button, usually located near the top of the chart.

Step 3: Click on the "Indicators" button to open the indicator menu.

Step 4: In the search bar within the indicator menu, type the name of the indicator you want to add, such as "Average True Range."

Step 5: Select the desired indicator from the search results, click the "Apply" or "OK" button to apply them to the chart.

Step 6: The indicators should now be displayed on the STEEM/USDT chart, providing you with insights into market volatility.

SS showing the ATR indicator

One additional benefit is that you can use two or more indicators at once, to do that, repeat steps 3-6 for each additional indicator you want to include.

SS showing both ATR and BB indicators

All SC were taken from TradevView; TV

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Explain in your own words, what happened to the volatility in the last month of the STEEM/USDT chart.

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Volatility is the excitement of the market, hence, when there's high volatility, it means things are moving around a lot and there's a lot of action, whereas, low volatility means things are more calm and stable.

Analyzing using the Average True Range (ATR) indicator, in the last month, the volatility of the STEEM/USDT chart went through a radical movement to a more stable and calm state.

SC of the last 1 month STEEM/USDT chart from TV

From the Screenshot above, taking today, into account, the last month dates back to 7th November 2023, the market was exciting as the price of STEEM/USDT moved up and down more rapidly, as seen by the ATR indicator. The indicator showed a high peak value in the range of 0.0225, and according to the ATR indicator, high values signifies high volatility, meaning the Steem/USDT market was very volatility as at 7th November, 2023.

This increased movement indicates higher volatility as the market got a burst of energy and started making bigger swings as news of STEEM/USDT being accepted as future trading pairs on MEXC and later Binance.

In the later stages of the month, from around 20th November till date, things got calm, with a lower ATR figure betweeen 0.0035 - 0.007 meant the price didn't fluctuate much, and there wasn't a lot of action happening indicating more stability (less volatility) in the STEEM/USDT market.

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Do you think the future of cryptocurrencies is more stable? Give your own opinion.

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Well, in my opinion, the future of anything is hard to predict, and cryptocurrencies aren't left out l, as the erratic nature of cryptocurrencies makes it difficult. However, there are beliefs that cryptocurrencies will be more stable over time if certain factors are put in place, factors such as;

Increased Adoption:

As more people and businesses start using cryptocurrencies for everyday transactions, it can help stabilize the market. When cryptocurrencies become more widely accepted and integrated into the global economy, their value may become less dependent on speculation and more tied to real-world utility.

Regulatory Clarity:

As governments and regulatory bodies establish clearer guidelines and regulations around cryptocurrencies, it can provide a sense of stability to the market. This can help reduce fraud and illegal activities, making cryptocurrencies a more trustworthy and reliable investment option.

Improved Infrastructure:

The development of robust and user-friendly infrastructure, such as secure wallets, decentralized exchanges, and blockchain scalability solutions, can enhance the stability of the crypto market. These advancements can make transactions faster, cheaper, and more secure, boosting confidence in the overall system.

Market Maturity:

Over time, as the crypto market matures and becomes more established, it may experience reduced price fluctuations and volatility. This could be due to a more educated and experienced investor base, better risk management practices, and a deeper understanding of market dynamics.

Economic Stability:

Broader economic stability can also contribute to a more stable crypto market. When traditional financial systems are stable and economies are growing, it can create a positive environment for cryptocurrencies to thrive.

CONCLUSION

In conclusion, volatility in cryptocurrency is like a roller coaster ride characterized by rapid price swings, uncertainty, and the potential for both profits and losses.

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I wish to invite @starrchris, @yancar, @ngoenyi and @suboohi

Thank You for your Time

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NOTE: Always have a smile on your face, as you are never fully dressed without one.